Pumping The Referrals Pipeline

March 11, 2013
by Murray Coleman


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While Stephen Barnes is finding that most of his new customers are coming to him through referrals from existing clients, the financial adviser sees huge gaps in the process.

Although he tries to keep dutiful records and follow-up leads in a timely manner, the co-founder of Barnes Investment Advisory Inc. believes that taking advantage of strong “word-of-mouth” often is more a matter of art than science.

“I think we’re diligent about keeping our pipelines as full as possible, but there’s no question at times a few referrals can slip through the cracks,” says Mr. Barnes, whose firm in Phoenix, Ariz., oversees about $150 million in assets under management.

A typical adviser meets with only 10% to 15% of the referrals that are made to them by clients, according to a new study by Advisor Impact, a market research firm based in Toronto, Canada. The report, which was sponsored by Genworth Financial GNW -1.08 % Wealth Management, also found that 28% of U.S. investors surveyed reported referring family and friends to their advisers.

But that can be deceiving, says Julie Littlechild, Advisor Impact’s chief executive. “Clients might be passing along names, but they aren’t always making strong enough recommendations to lead to direct contact with advisers,” she says.

Of those clients making referrals, just 12% are estimated to have made formal introductions to their advisers. “Clients might be talking about their advisers with friends and family, but the advisers aren’t necessarily getting a lot out of the referral process,” Ms. Littlechild says.

Mr. Barnes maintains that his firm has set policies and procedures for advisers to track good buzz surrounding the business. But he points out that even the most diligent adviser can have difficulties deciphering how to make the best connections.

Michelle Higgins considers initial contacts with less-qualified referrals to be much like going on a blind date. “We might not start off on a warm and fuzzy note, but it’s important to let people know they’re under no pressure to fall in love right away,” says the co-founder of California Financial Advisors. The San Ramon, Calif.-based firm manages about $800 million in assets.

Whether it’s a known quantity or not, Ms. Higgins believes a possible new customer should be contacted by stressing that the meeting process isn’t a short-term affair. “It’s vital to let prospects know you’re interviewing them as much as they’re interviewing you. It’s not always going to be a match made in heaven,” she says.

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