Matt Anderson, founder of Chicago-based The Referral Authority, on how to ask clients for a referral...and how not to.
Just how important are referrals?
"It is a skill to be able to ask a client for a referral. People are very bashful about asking, because it is uncomfortable, but everybody likes to be referred. And how you ask can make an enormous difference.
"More often than not, when we ask for something we get it. So the first thing people must do is conquer their fear of asking and then develop effective ways to ask. It does not work to say: ‘Can you refer me to a bunch of your friends?'
"However, once advisers recognise the asking part isn't all that hard, there are other considerations. Net wealth is an example. If your client is worth £500k, it might be uncomfortable to ask for a referral to somebody you know may be worth as much as £4m or £5m. On the flip side, clients will often be very comfortable referring a friend who earns far less than them.
"But the more confident advisers are, the more they will realise that if their clients like them, they will be happy to open doors for them. Then they will be more inclined to pursue the conversation and, provided they are clear about what it is they want, the client will probably help.
"One would think it is such a simple topic, but there is a huge grey area because there are so many intangibles with different relationships. You could have five clients sat with you round a table, but that does not mean they will all get on with you to the same degree. That is where the skill element comes in. Only with practice can you learn what works with some people and what extra nudges other people might need."
Should you offer clients an incentive to refer?
"I think that is a terrible idea. It is a good idea to, after the fact and unannounced, unexpectedly send your client a small token of appreciation. But it should be meaningful to that individual. A bottle of wine, for example, will only mean something, really, to a wine connoisseur.
"But to announce up front that if client A opens the door to client B, you will scratch their back in any way, I don't think that is the way to build the relationships that, long-term, you are looking for. It might work once or twice, but the problem is you are compromising values.
"If client A refers client B, and then client B finds out client A got a bottle of wine for his troubles, he could ask: ‘Well, what was the real incentive behind my recommendation?' ‘Did client A really recommend this particular adviser because he is the best, or because he got FA Cup tickets?'"
What are the big no-no's when asking for a referral?
"Only ask happy clients. Do not ask every time you see a customer. That would be annoying. Do not be really vague about the business you are looking for. Do not say: ‘Well, if you know anybody else in the UK who might need some advice, send them to me.'
"It can be difficult not to sound desperate, and that is one of the reasons people do not ask. If business is quiet, for example, you would have to fake how you ask. You can only really ask for real help from the people you know well. If you have known somebody for 20 years, they will be more willing to help you through a rough patch. Otherwise, it's like rats running off a sinking ship. You don't want to give the impression your business is not doing particularly well - and hence you are having to ask for referrals - because people run from you."
What are your top tips for asking for a referral?
"Recognise your fears of asking are mostly irrational. You have got to have an empowering belief about why you would ask, which is that you can help people. If you are uncomfortable asking, the rest of the conversation will flop.
"Be very specific about what it is that you want. This is the most important tip. Being very specific, such as identifying individuals who may be suitable candidates for referral, can make all the difference in the world. Say something like: ‘Dave Smith, your business partner, and yourself probably do not discuss the sorts of things we discuss. Do you think he'd be worth reaching out to?' Or: ‘I work with executives (you can insert anything here: engineers, teachers etc) such as yourself...'
"Listen. What amazes me is how few people really do this, whereas some people are just amazing at listening. They listen and they can always hear the business opportunity. Your client could be talking about their retirement plans and could say something like: ‘My sister also needs a pension plans'. A lot of advisers, I suspect, would then say: ‘Really, well, as we were saying...' and completely miss the opportunity.
"Be clear that the client is getting value. Have a conversation about the benefits they are receiving. You have the right to ask for a referral."
Find out more about Matt Anderson and The Referral Authority HERE.
Has run Cautious Managed fund since 2011
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Available on Investcentre platform
Invested from 2006-2011