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4 Essential Components of an Effective Referral Program for Financial Advisors

Date: May 10, 2023

Despite being client referrals being used in 93% of practices, just 20% of financial advisors proactively solicit referrals and even fewer have a clearly defined referral program in place, according to Kitces’s 2022 report on marketing tactics. Those few who did have a consistent and well-defined referral process in place outpaced those who didn’t in terms of revenue growth. So if you’re not among that 20% already, here’s what you need to build an effective referral program for financial advisors that generates more leads and conversions. 

A Clearly Defined “Ideal Referral”

The first step to implementing a successful referral program is going in with a well-defined idea of the kind of new clients you want to bring in. Do you want to niche down into a particular service area? Do you want to transition toward higher net-worth clients? Do you just want more clients like the ones you already have?

With your ideal referral clearly defined, you’ll be able to communicate to your current clients exactly what you’re looking for so that they can then bring you the kind of referrals you’re hoping for. This ideal referral also helps you set more concrete goals for the program and shape your overall process, including who you ask for referrals and how. 

Proactive (But Not Pushy) Referral Requests

The advisory practices that get the most referrals are the ones with a clear and consistent process for soliciting them. In other words, if you want more client referrals, you need to ask for them. Yet just 20% of firms actually do this. The rest just wait for clients to send referrals on their own.

While it might feel like directly asking for referrals would sound pushy or needy, it doesn’t have to be. To avoid making clients feel pressured, you can incorporate some of these best practices when it comes to making the request:

  • Ask clients with whom you have strong and positive relationships. Avoid asking those who have had a recent negative experience.
  • When asking for referrals in person, wait until after you finish the business at hand. This ensures your client feels like they are still a priority, even if you’re looking to add new clients. It also times your request for a time when your value and expertise is fresh in their mind. 
  • Keep the ask simple and friendly. You don’t have to deliver a convincing explanation for why you’re asking for referrals or reassure them that you will still prioritize them. Just keep it simple. At the end of a meeting, thank them for their time and ask if they have any friend or family that could use your services. The worst thing they can do is say no. But even if it’s a no right then, you’ve planted the seed so that if they do think of someone later, they’ll know they can send them your way.
  • Ask regularly, but not constantly. It helps to set a specific time that you bring up referrals. For example, some advisors build it into their annual review. After reminding the client of all the value they provided that year, they end by asking if that client knows anyone they could refer to you.  

A Built-In Client Appreciation Process

Another important way to avoid your referral requests sounding pushy or needy is to remember to show gratitude after a referral is made. This can be as simple as sending a thank you note after a referral calls you. Just make sure your clients feel acknowledged and valued for their effort so that they’re more likely to keep sending referrals down the road. 

Some advisors go so far as to offer an incentive program to reward clients who bring in referrals. For example, you might offer a 5% discount on fees for each referral that turns into a client. Alternatively, you can offer small gifts like a gift card to their favorite restaurant or a bottle of wine from their favorite region.

A Method for Tracking Results and Adjusting the Program Accordingly

To track whether your program is working, you not only need to measure the results but also set concrete goals. Because what you track and what counts as successful will depend largely on what you want to get out of this referral program.

If you’re aiming for more high net worth clients, for example, the average AUM per new client might be more important than the total number of new clients or the conversion rate. If your goal is to build up a larger client base, though, you’d place more weight on that total number of new clients. 

Either way, define your goal in terms of the most important metric, even if you track multiple. So the growth-oriented advisory firm might set its goal at a minimum of, say, 20 new clients from referrals by the end of the year, for example. 

In addition to proactively seeking referrals from clients, don’t forget to implement a process for increasing referrals from your COIs!

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