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Whenever I ask advisory firms how they generate new business, the answer is the same: referrals. I get the same uniformity of responses to a series of referral-related questions:
“What percentage of new business comes from referrals?” (“50%-75%.”)
“How do you generate referrals?” (“It just happens naturally.”)
“Do you track referrals?” (“No.”)
“Is anyone accountable for generating referrals?” (“No.”)
“Is there a standard protocol you use to ask for referrals?” (“No.”)
I am struck by this disconnect. Referrals play a critical role in generating new business, yet little attention is paid to the process of getting them.
There is a considerable amount of sound data on how to acquire referrals. But the initial issue you must address is whether you should ask for them at all.
Reasons not to ask for referrals
There are sound arguments for not asking for referrals. Mark Hoaglin, a consultant to advisory firms, summarized some of them. He believes that asking for referrals only “cheapens” your practice. Instead, Hoaglin suggests referring business to your clients and organizing client events. He believes these activities will ultimately result in referrals, without the stigma of a direct request.
There is a sound psychological basis for Hoaglin’s views. It is called the “rule of reciprocity.” We have a deep-seated need to reciprocate when someone does something for us. If a neighbor invites you to dinner, you will feel a strong obligation to respond with your own invitation. If you receive a request for a charitable donation that includes a small “gift,” you will be more likely to donate.
You should consider ways you can use the rule of reciprocity to obtain more referrals.
Formalizing the referral process
The first step to implementing a sound referral program is to formalize your referral process.
Most corporations, and some advisory firms, have a chief marketing officer. I recommend adding the role of chief referral officer, or CRO. This person is responsible for following all referrals that come into your firm. Responsibilities of the CRO include tracking:
- Who made the referral?
- What motivated the referral?
- To whom was the business referred?
- Why was the business referred to that advisor?
- How many referrals did the firm generate in each quarter?
- How many referrals did each advisor generate in each quarter?
- What business has the firm referred to clients or others?
- What process do we use to track and increase the amount of business referred by our advisors to clients and prospects?
It is the responsibility of the CRO to interview advisors and find out what is working – and what isn’t – with the referral process. If most referrals are coming from client events, what kinds of events work best? If they are coming from centers of influence, such as law firms or accounting firms, how did those relationships start? How can the firm expand existing relationships and create new ones?
The CRO should also be current on research relating to referrals and should attend conferences on this subject.
Asking for referrals
Despite the stigma, there are some circumstances in which you should directly ask for referrals. Here are suggestions for identifying those circumstances:
- You have established a relationship of trust and confidence with your client.
- You and your client genuinely like each other.
- You are very confident the service you provided exceeds expectations.
If these criteria are met, here’s some counterintuitive advice. There’s a flip side to the rule of reciprocity. People don’t necessarily need you to do a favor for them before they are willing to do one for you.
We can assume someone will do a favor for you if they like you. The act of doing a favor is often a reflection of the high esteem in which the person doing the favor holds the person who asks for it. But here’s where it gets really interesting. A compelling study found that when a person performs a favor for another, that act alone increases the likability of the person who asked for the favor.
Other studies have found that people greatly underestimate how eager others are to grant a favor. Frank Flynn, associate professor of organizational behavior at the Stanford Graduate School of Business, summarized these findings as follows: “Our research should encourage people to ask for help and not assume that others are disinclined to comply.”
These studies should embolden you to ask directly for referrals when appropriate.
How to frame your referral request
Honesty and sincerity are the hallmark of all successful relationships, both business and personal. Implementation of these suggestions assumes you are being both honest and sincere.
Here’s some suggested language you can use to request a referral:
“Can I ask a favor of you? Would you be comfortable keeping us in mind if you have friends or colleagues who might benefit from our services?”
Note how this request is framed. It expressly asks for a favor. It does not talk about how referrals are important to your business or give other explanations for how you benefit from referrals. No one cares (except you).
Try it and let me know how it works.
Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth advisor with Buckingham. He is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read. He limits his sales coaching practice to advisory firms that advocate evidence-based investing.
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