While advisory businesses struggle to make a dollar, the solution is staring them right in the face. Krystine Lumanta reports.
Pouring money into advertising in order to build a financial planning business’ client base is outdated and inappropriate, according to industry lead generation experts.
Word-of-mouth referrals should be the first method a planning firm uses if they want to remain profitable and strategic in the coming years.
According to Nathan Williams, managing director of Customer Return, 15 per cent of people believe in corporate advertising, compared to 90 per cent of people believing in word-of-mouth recommendations.
“If you’re spending more on advertising than on generating word-of-mouth referrals, you’ve got the maths the wrong way around!” Williams says.
“Look at your clients as the best source for your business…staying in contact with their clients and getting those referrals from existing clients, [is] the most profitable or strategic way to get new leads.
‘It’s between five and eight times more profitable getting business from existing clients as opposed to if you try to get them from other prospects.’
“It’s between five and eight times more profitable getting business from existing clients as opposed to if you try to get them from different prospects,” he says.
“So economically, it makes sense.”
In addition, clients who are referred are generally more profitable because “the referred client is wiser, less likely to be price-conscious and it’s just an easier relationship…because of the implied trust”.
John Nolan, practice development manager, intermediaries at Russell Investments, describes advertising as a“blunt instrument”, which should generally be avoided.
“Unless you’ve got a niche…in terms of clients, advertising on the radio or in the press is really expensive and [you might be] paying for a lot of people to hear your message that you don’t want as clients,” Nolan says.
Williams says that advisers don’t have a referral conversation with most of their clients because they don’t know what their clients think of them, and therefore there’s an immediate confidence issue.
“We’ve found that 80 per cent of clients would be happy to refer but only 20 per cent of advisers have that conversation,” he says.
“The most important thing is that you have to earn the right to have that referral conversation.”
FIRST STEP
The first step that Williams recommends advisers take is to gather client feedback using a third party to ensure that their relationship is as strong as it should be.
“That’s the first step of actually having a higher probability of getting a referral from a client,” he says.
“One key question is to always ask: On a scale of one to ten, how likely is it that you would refer us to your friends and family?
“Research shows that people who are getting nines and tens are instantly more profitable than people that are getting fives, sixes and sevens, so there’s a direct correlation between likelihood to refer and the profitability of the firm.”
Peter Bowman, head of marketing at Financial Services Partners Group (FSP), says the key benefit of using Customer Return’s service for client satisfaction research is that its personal approach is the easiest way for advisers to engage with clients.
“You can say the word ‘survey’ these days and it will just put a person to sleep,” Bowman says.
“From a dealer group [perspective]… we’ve used the results in our marketing and as part of our recruitment efforts as well, to position Financial Services Partners as a business that cares about the client experience, and that’s the kind of adviser that we would like to have as part of our dealer group.
“The [research] provides a wealth of information for an adviser’s practice and enabled us to validate the value of advice.”
COMMITMENT
The time commitment required to set up a solid word-of-mouth referral strategy is usually the core reason why it’s fallen off the priority radar.
Williams says: “In terms of how hard or easy it is, at the end of the day if they don’t have clients, they don’t have business, so lead generation’s got to be a high priority.
“People within the business must have the right mindset that they want to grow their business based on referrals, and they follow those basic steps of getting that feedback and dropping the hint about being a referrals-based business.
“I don’t think it’s hard per se, it’s more of a mindset and looking at the opportunities; but a lot of people just miss those totally.”
Williams says the firms he’s worked with that have changed their mindset from business marketing to a more effective referral method have been successful within a matter of weeks.
“It’s not a time-intensive process; in fact, done well, we should actually save in the long term when looking for new business, because you’re saying the right things in meetings, you’re doing it as part of your everyday activities,” he says.
Nolan says if advisers feel that it’s hard work, they should always take a step back and ask themselves: “What do I like to do? What am I good at? What can I deliver effectively and efficiently?”
“I know an adviser that’s a bit of a fitness nut and he gets most of his referrals for his business from his local gym and that means all of his clients also have got a focus on fitness,” Nolan says.
“It’s been really refreshing for him, actually doing an activity he likes, because of the deeper client engagement – they have something in common.”
