New client growth is the lifeblood of financial planning firms and there are myriad strategies for attracting qualified prospects, but many of these come with a hard-dollar or time cost for the firm. Which is why many advisors seek to leverage client referrals, where their clients refer family members, friends, or colleagues to the advisor. At the same time, asking clients to make referrals (and having the referred individual actually reach out to the advisor) can be challenging. With this in mind, advisors can use several ways to ask for referrals and tactics to increase the chances that their clients will make more successful ones.
Giving and receiving referrals can be thought of as a pro-social, virtuous loop, where both the giver and receiver of the referral receive benefits from the exchange, where giving a referral can help someone who needs it and at the same time feels good to provide help. This suggests that in addition to the advisor receiving referrals, clients, too, can benefit from the positive feedback of giving referrals and the emotional satisfaction of helping their friends and family (as research has found that financial planning clients most commonly refer friends or family members who either asked for a recommendation for an advisor or told them about a financial challenge they were having, leading the client to suggest their advisor might be able to help).
Importantly, asking a client for referrals won’t guarantee that the referral will actually contact the advisor. For instance, research has found that while 25% to 35% of financial planning clients make referrals, advisors only meet referrals from 3% to 5% of their client base. This may be because the recipient didn’t request a referral in the first place or because the client provided an advisor’s contact information without explaining how they may have benefited from working with the advisor or why the advisor might be able to help the recipient.
One way an advisor can improve the outcomes of client referrals is to ask their clients ‘referral story’ questions, which can help clients articulate to potential referral recipients their own personal connection to financial planning, their experience with their advisor, and the benefits of their work together. By asking clients to identify a specific issue they worked on with the advisor, the steps they took to address the issue, and the greatest impact they got from solving it, clients can start crafting their own referral stories that can provide more context to the recipients of their referrals. Advisors can also improve their referral outcomes by asking for feedback – even framing it as asking for advice – from their clients (e.g., asking for advice on how they might go about meeting and working with others like them). And by doing some research on their referrals, advisors can ask for introductions to only those who they believe would make good clients.
Ultimately, the key point is that while client referrals can be one of the most cost-effective methods for attracting prospective clients, successful referrals do not necessarily come automatically. But by helping clients craft their own referral story and enlisting their support in generating referrals, advisors can increase the chances of getting more referrals – and introductions to the best referrals – going forward!
