Referrals are the lifeblood of a thriving financial advisory business. Our proprietary research has shown that 71 percent of new assets for top-performing financial advisors come from one of two referral sources: clients and other members of your professional wealth management network, including commercial lenders, business evaluation experts, CPAs, attorneys and others.
So…if financial advisor referrals are so desirable and provide the bulk of new relationships anyway, here's a question. Does it make sense to go "all in" and build a wealth management practice entirely based on referrals, i.e. a 100 percent referral-based practice?
Because such a referral-based practice would gain all new relationships organically through referrals, such practices could potentially eliminate the budget for traditional business development activities. These include cold calling, prospect lists, direct mail campaigns, public relations and social media marketing campaigns.
On the other hand, a practice solely based on referrals may not make sense for some advisors and may be difficult to achieve. Here’s a look at the pros and the cons.
The Pros
Here are four reasons why it makes sense to build a practice completely around referrals, including:
The Cons
That being said, there are sound reasons not to commit to a 100 percent referral-based business, which include:
The Take Away
Whether your practice ultimately moves to a 100 percent referral model or not isn’t the direct issue. What is more important is to consider how you acquire business and the processes surrounding client acquisition and your connection with your referral sources. Any wealth management practice that develops and sustains sound client acquisition processes, especially around Loyal Client Advocates™ and Professional Advocates™ (see below) will find it easier to move to whatever mix of referrals and external business opportunities are optimal at any given moment.
In part 2 of this blog post, we’ll expand on the qualities that will make it easier for your practice to move to a larger mix of referrals versus external business opportunities and how this might be beneficial.