A survey conducted by Prudential Financial among 800 decision makers of US households shows that 64% of them perceived offering referral as a ‘social risk’.
Most financial advisors believe that referral is the best way to increase their client base. However, did you know what factors influence a client’s likeliness to refer you?
A study conducted by Prudential Financial, Inc. (PFI) of USA, the sponsor of Pramerica Mutual Fund among 800 decision makers of US households showed that recommending a financial advisor comes with a higher degree of ‘social risk’ than recommending many other professionals including accountants, physicians, and dentists. However, the study shows that clients do offer referrals if they trust their advisors. Although the study was conducted in US, the results are equally relevant for advisors in the Indian context.
What influences clients decisions to provide referrals?
- Clients are more likely to offer referrals if advisors are more accessible to clients, listen carefully, understand their financial needs and take action based on what they have learned.
- Advisors who set realistic expectations about returns, deliver on their promise and are transparent about their fees are more likely to get referrals from their clients. Clients are also more likely to refer advisors who achieve strong investment performance.
- Clients are more likely to refer advisors who provide services beyond generating investment returns. The study showed that clients who were provided written financial plans were more likely to refer than those were not. 64% of those willing to refer advisors were those who were provided written financial plans.
- Those who received advice about preserving and protecting savings were more likely to refer than clients who did not.
- Receiving advice related to generating steady retirement income was also a key driver of referral likelihood.
- The perception of advisors firm also drives referrals. Having in-house resources and expertise such as attorney or health insurance specialist also helps generate referrals.
Another interesting finding from the study revealed that it takes 4.8 years on an average for clients to get comfortable recommending advisors to their clients, more than twice what advisors thought it would take (2.1 years).
To conclude, the study says that advisors should be able to increase the frequency of referrals by knowing the appropriate time to ask and by recognizing that certain advisor attributes and services result in higher level of referral activity.
Methodology
The online survey was held in November 2011 with participants between the ages 45-75 and a household income of over $ 1,00,000 if working and $ 5,00,000 if retired. Each participant was the primary or joint decision maker on household financial decisions. Each participant was a client of a financial advisor for five years.
