Referrals: The Lazy Advisor’s Growth Plan

Firm growth

What a great time to be an advisor who is looking to grow their business. The market has woken up and shown some volatility reminding investors that it doesn’t always go straight up. The new tax law has clients and prospects confused as to how it will affect them just as they are receiving 1099s, K1s and assorted forms from last year. In addition, every day with lower unemployment numbers, secure in their financial position, more and more people are aging, thinking about healthcare, nearing retirement, sending the kids to college, etc. The industry is facing this great opportunity head-on with discussions about fintech, active vs. passive, and debating the fiduciary movement and the right to charge high commissions. With this great tailwind for growth, what are advisors doing during this historic time? Based on my experience—basically nothing.

Like fruit, you’re either growing or dying

For years, most of the advisors that I met say they grow their businesses by referrals. I’ve even seen signs that say “by referral only” or “a referral-based firm” on some firms’ doors, walls, websites and stationary. And it always struck me as a good idea until I started digging into it. What I found (and this may hurt a few that I’ve met in the past) is that it really means they are doing absolutely nothing to grow their firms. They’re taking the lazy way out and expecting their clients to grow it for them. Most have no process for referral generation, no tracking system, and especially, no proactive outreach. They don’t have other marketing engines, ideas or a strategy, so becoming a “referral-based firm” is an excuse not a plan.

I’ve used this quote before and I wish I could remember who said it so I could give credit: “An advisory business is like a piece of fruit, it is either growing or dying.” As I look out there in the marketplace and meet firms at conferences and events, I see a bunch of dying firms. They may not know it or feel it but they’re dying the slow death of irrelevance and complacency.

Here’s an example

Recently, an advisory firm in the Mid-Atlantic states asked me to meet with them. Before the meeting, as always, I started my homework by reviewing their website and social media. Frankly, it looked like they mailed it in. The site was a generic, templated site they had purchased from a paint-by-number “social media for advisors firm” kit. The site touted every cliché possible with sections for planning for high-net-worth households, retirees, business owners with “advice” on insurance and estate planning, and even allowed the prospect to “Get a Quote.” The pictures were stock photography, the bios were generic, the text was market-driven—and you guessed it—there was a note stating that they were very appreciative of the referrals they received from satisfied clients. (Personally, I never have given a referral if I was only satisfied with the service. But that’s just me.)

After reading through the site and given this great time to be out there, I had to ask myself the following:

  • Does this firm really want to grow or is good enough, good enough?
  • If you were a prospect and by some chance were referred to this firm by a friend or colleague, would you call them after seeing the site?
  • Is the website a reflection on the culture and commitment? Are they giving lip service to growth? Are they lazy?
  • Just who is referring them and why? What makes them special?

Start: Who are you and what’s your brand

For me, the website is an easy way to get a quick glance of a firm’s appetite for growth and attention to detail. But it doesn’t stop there. In conversations with firms, you quickly get an idea of how committed they are to growing their firms by looking at their activities, processes and growth plan. Stronger firms know exactly who their targets or ideal clients are as well as about all their preferences. They also built a brand that’s reflected on that ideal.

To me, brand is the tangible reflection of who you are, what you do and whom you serve. It’s how people refer to you and why you’re different. Yet, most advisors let the market brand them, or almost as bad, try to create a brand on their own. Branding takes a lot of work and a certain expertise, which most advisors don’t have. Moreover, it costs money, which most advisors won’t spend.

A few years ago, I was having a discussion with a professional marketing person. Personally, I think she had the quote of the decade, “Advisors get mad when untrained clients try to manage portfolios and do planning on their own, yet think nothing of doing branding and marketing on their own because they don’t want to incur the expense of a professional.” Sure, it may be expensive but isn’t investing in your business worth it? Many professional marketing firms focus on our industry and can use their expertise to build your brand.

Next: Build an engine

Sure, referrals are great when you get them. They’re probably the easiest prospects to close and that’s why it’s attractive to rely on referrals. However, can you really count on referrals as the only engine of growth? How many referrals did advisors get in 2008–2009? Successful, burgeoning advisors have a growth plan that contains many different sources of new clients. They’re using targeted marketing, social media outreaches, client and prospect events as well as COI relationships. Again, it starts with a plan and a budget.

It blows my mind that industry stats show advisory firms spend under 2% of their gross revenue on marketing and business development activities. My guess is that most marketing is done on a whim or is part of a strategic plan. Think about what would a targeted plan with identified goals and a specific budget (and owner) for each activity do to grow your business rather than sitting back and hoping the phone rings.

Track and measure

How do you know what activities work or if you’re maximizing your marketing budget? You must track and measure your work. Make sure you schedule formal follow-up meetings after every activity. Plus, hold a marketing meeting quarterly or semiannually with your staff to review things like:

  • The number of clients or prospects that attend each event
  • Number of clients from specific events and activities
  • Marketing cost per client
  • ROI per event or activity (This is the most important)

ROI is one of my favorite things to track. Say you spend $5,000 on a big prospecting-type event, which nets you two $500,000 clients. At 100 bps in a fee-based account, the gross revenue is $10,000, which obviously is a great number. But what is the ROI in year 2, 3 or 4 (or longer)? As long as you keep the client, the revenue keeps coming in. What a great return!

Don’t be lazy

Not having a brand or other marketing engines in place yet, you can still use referrals to grow your business. However, advisors cannot rely on client goodwill or certain situations to send referrals. Advisors have to have a framework for referrals. “What Makes an Advisor Referable?” is a great question and is answered in Julie Littlechild and Steve Wershing’s paper by the same name. By surveying 512 firms, they created a framework of steps (and SEI created tools to build on that foundation).

They also created a new industry standard benchmarking tool to identify just how referable a firm is to their clients. Steve and Julie created the tool that provides real-world research to establish steps to improve the score and thus referability. I would love to tell you that the servers are on fire with signups. And while the index is growing, it’s doing so at a much, much slower pace than I expected.

What it comes down to is that advisors can say, “by referral only,” but do they know how to get referrals? Are they referral-only because they have a great benchmark score or because they don’t have any other options to grow their businesses? What does their growth plan look like? I can’t think of a better time than today to be marketing, meeting prospects and bringing in and onboarding new clients. Are you sitting back and waiting for that referral to come in or do you have a brand and a plan, and are you building the foundation for a real referral-only firm?

Julie Littlechild and Stephen Wershing are not affiliated with SEI or its subsidiaries.

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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