A new perspective on who to target and how to attract them

by Stephen Wershing, CFP®

A financial adviser think tank convened earlier this year may have uncovered a revolutionary new perspective on who we target as prospects and how we attract them.

I was asked to facilitate the think tank, organized by Julie Littlechild of Advisor Impact and held in conjunction with FPA Business Solutions 2011 in Boston in early March. Represented were large and small practices from different areas of the country. The objective was to have a real-time discussion, digging into some conclusions published in Littlechild's study The Economics of Loyalty: Anatomy of the Referral. We discussed client segmentation, client on-boarding practices, target marketing and referral strategies. We discovered some very interesting things, two of which I will review here: the disconnect between an adviser's stated target market and client on-boarding decisions, and the absence of referral marketing strategies despite the recognition of the importance of referrals.

Target Market Vs. Actual New Clients
We asked advisers what criteria they use to identify prospects and heard the predictable response-demographics, including profession and investable assets. We then asked the advisers how they evaluate prospective clients to determine who ultimately becomes a client. The two subjects seem almost entirely unrelated. When we asked advisers what they consider when making a decision to work with a prospect or not, the criteria were mostly psychological or relationship-based: They were delegators, they believed in the process, they cooperated in the data gathering or they were responsive to requests.

We then asked about the circumstances of acquiring clients. A large majority of the time, a triggering event caused the prospect to have an immediate need for financial advice, such as a change in employment, the loss of a loved one, a change in marital status or a sudden windfall. Therefore, one conclusion from this think tank session was that targeting demographics may be the wrong direction. It seems advisers are not using demographics as a screening factor for prospective clients anyway. Rather, you might target specific client circumstances in which to specialize. This solves another problem with adviser marketing-most marketing efforts talk more about the adviser than about the clients they hope to serve. Too much marketing says, "Here's what we do." Not enough marketing says, "People with this challenge come to us."

What's Missing: A Referral Strategy
This leads to another major conclusion of our think tank. The advisers who participated (like most advisers I speak to) agree that referrals are the lifeblood of their business, and yet none have a plan to systematically attract them. While this is an obvious and significant shortcoming of most advisers' business plans, it is not unique to our industry. In The Referral Engine, marketing expert John Jantsch reports that in his survey of more than 1,000 small-business owners, 63.4 percent report that referrals account for more than 50 percent of new business, and 79.9 percent of those business owners have no formal referral strategies.

Among the small proportion of financial advisers who claim to have formal referral strategies, those strategies are seldom more sophisticated than to simply "ask more." Unfortunately, we know that asking for referrals is one of the least effective ways to get them. While a lot is written about the importance of asking for referrals and how to do it better, that is not a testament to the effectiveness of asking; it's merely proof of Maslow's assertion that if all you have is a hammer the entire world looks like a nail. If the only recognized referral strategy is asking for them, asking will be "proven" the best.

Littlechild's study reinforces that asking is not the most effective strategy. Only 2 percent of investors who recently referred their financial adviser did so because their adviser asked for a referral. If referrals are almost always generated some other way, why not create a strategy to facilitate the way they naturally occur?

Be a Problem-Solver
We asked think tank participants how they attract new clients; what's included in their marketing plans? The advisers at the table who were most successful at attracting new business told us about their strategies of communicating the kinds of problems they solve for people. One adviser publishes case studies in the firm's marketing brochures. A couple of advisers teach their staffs how to communicate what they do so clients hear a consistent message from different people.

This, too, reinforces findings of Littlechild's study. Going back to the question of why clients refer, 57 percent most recently referred their adviser because a friend expressed a particular financial challenge. In 48 percent of those cases, the client was specifically asked for a referral to a financial adviser. I suspect there is some triggering event here as well, perhaps motivated by a bad experience with another financial professional. This seems to point toward the idea that the most productive referral marketing strategy is not to maximize the efficiency or effectiveness of asking-which is generally an unnatural situation for adviser and client-but to prepare the client for the opportunity to refer.

Much has been written about the effectiveness of niche marketing. Our think tank reinforced the value of explaining particular problems you are skilled at solving or client circumstances you are adept at handling. If you can own that particular spot in your clients' minds, then they will think of you when a friend describes that challenge or scenario. Create a communication strategy around those particular skills and you will stimulate referrals in a way much more in tune with how they would naturally occur.

So, how do you describe your unique value to clients? Discovering your strengths may not be as obvious an exercise as it would seem. The Economics of Loyalty: Anatomy of the Referral sheds some light on this. Systematically soliciting feedback is a driver of client engagement. Survey your clients or organize a client advisory board, and your clients will help you understand what they see as your unique value in the relationship.

Ask by Not Asking
When I facilitate client advisory boards, I usually first aim to discover what the clients believe are the most important contributions the adviser makes to the relationship; what is unique about the adviser. I then recommend the adviser communicate the outcome of this conversation to the entire client base. It may be posted on the adviser's website or published in his or her newsletter. However, the most important element of the communication strategy takes place during individual client meetings.

Partly in response to the think tank discussion, I have modified what I suggest advisers communicate to clients. At the end of the client meeting, you might include something like, "We have been working with our client advisory board to discover the most valuable things we do for you (a statement that can help drive client loyalty all by itself). What we have learned is that we are particularly good at [financial challenge or target client circumstance]. If you have any ideas on how we might connect with people in that situation, your advice would be a great help."

Or perhaps even better, "You are someone who [faces that challenge, or is in that circumstance] and we are focusing on working with people in the same situation. If you were in my shoes, what would be the first few things you would do to find other people in that situation?"

I am convinced that asking for referrals is a bad strategy. We need to get away from the "who do you know" question. Of course, we still need to have conversations that lead to referrals, so one alternative approach is to ask by not asking, as illustrated earlier. Don't ask for a referral, ask for advice. In the process, you will be reinforcing your unique value and gently instructing clients on who you want them to refer.

Our think tank exposed surprising disconnects in client targeting practices and reinforced that key elements of adviser marketing plans are missing. We learned we can combine aspects of both issues and create what could be a powerful way to attract new clients. We hope to conduct more sessions over the coming year, build on these discoveries and learn more about creating productive relationships between clients and advisers.

Stephen Wershing, CFP®, is president of The Client Driven Practice (www.theclientdrivenpractice.com). He consults financial practitioners on many practice management issues, including strategic differentiation, client advisory boards and implementing technology.