The tricks to attracting highnet-worth clients

Jonathan Chevreau
Financial Post

All financial advisors know that referrals from satisfied clients are the best way to build their business. This is especially true in the highnetworth market, with the most effective being referrals from accountants and lawyers, members of the Toronto CFA Society were advised last week.

While most chartered financial analysts are probably more comfortable analyzing investments, it appears many feel the need to beef up their sales skills. Last Tuesday, the Toronto CFA Society invited Dan Richards, president of Strategic Imperatives, to reveal the secrets of how to attract High-Net-Worth clients.

Like myself, Richards had assumed holders of CFAs weren't in the front line of the sales process, but he subsequently learned 2,000 of the 7,000 members in the Toronto chapter work in wealth management.

Some of these are IDA firms, trust companies and large investment counsellors; however, many are in small and mid-sized firms or on their own "where they have no choice but to get involved in sales," Richards told me.

Frank Yim, who chairs the private-client committee of the Toronto chapter, says the CFA is a "wide designation and people use it in different capacities. Not all are working for a big mutual fund company or hedge funds and these people often deal with clients one on one."

So-called IC/PM firms -- investment counsellors and portfolio managers -- are often smaller boutiques or one-or two-person operations that manage client accounts on a discretionary basis (unlike most brokers or financial planners).

Often they must deal with wealthy clients directly because they don't have big departments dedicated to sales or compliance. "We really didn't know what kind of response we'd get but filled the room to capacity," Yim said.

Research by Richards on the various sources clients use to select new advisors finds referrals are critical fully 70% of the time. Such traditional leadgenerators as seminars generate only 7% of new business, while advertising, media profile and word-of-mouth reputation accounted for only 16% of new leads. Six per cent of the time, the client already knew the advisor or found them on their own.

By far the single biggest source of leads (49%) was prospective clients obtaining a referral from family or friends. Referrals from a bank branch took place 16% of the time, while professional referrals -- chiefly via lawyers or accountants -- made up another 5%. The latter may seem a relatively low percentage but that's because many professionals are not comfortable giving financial advisors referrals to their customers. Many don't see making referrals to advisors as part of their role. They worry it may seem unprofessional or that the referral may backfire and jeopardize their own business relationships with the wealthy.

In the final analysis, making referrals may not make the grade on the WIIFM scale: What's In It For Me?

But some highly successful advisors have made the leap to including professionals in their circle of referral generators. Richards cited some advisors who now sponsor joint events with lawyers and accountants, with clients pooled from all three parties.

The single most important element in successful prospecting was achieving trust. Of all the strategies that attract modern clients, trust tops all other factors put together. One Richards study found 53% of clients cited trust as the single-most important element in selecting an advisor. Way down the list was good advice and results, at 24%; expertise, at 18%; performance, at 9%; and professional qualifications, at 6%.

Richards described a "trust spectrum." Clients put the most trust in a referral from a professional and almost as much in one from a financial institution. Referrals from other clients of an advisor are trusted almost as much. At the opposite end of the trust spectrum are cold calls, direct mail and public seminars.

In their campaign to add professionals to their referral networks, advisors need to focus on a limited number of lawyers or accountants and establish trust first.

This is a long-term campaign that may take two or three years to bear fruit. In the meantime, similar techniques can be used to generate referrals from their regular clients. The first step is to assess how much "referral DNA" a particular client possesses.

And don't make assumptions based on your perception of their character. Richards fooled most of the audience with a story of how one outgoing, well-connected friendly male contact was reluctant to give referrals, while a shy, introverted woman turned out to be a prolific generator of referrals.

There are four main kinds of referrals: reactive, opportunistic, proactive and messianic. Proactive referrals are initiated by an advisor, while the others are initiated by the client or one of their contacts.

Unprompted referrals are nice when they occur -- often dropping into your lap -- but advisors can take matters into their own hands by being proactive and asking satisfied clients for referrals.

Yet Richards' research finds many advisors reluctant to do so. Two-thirds of advisors shy away from asking because they don't want to appear pushy, and half don't want to make clients feel they're being pressured.

Depending on your assessment of your client's "referral DNA," you can make a direct referral request or an indirect one. The latter is a softer sell and might entail using a phrase like "Should you be talking to someone who you think I could help, I'd be very grateful if you'd pass on my name."

In the end, it's all about basic sales techniques and amounts to the old saw that "if you don't ask, you don't get." This is true even for possessors of the coveted CFA designation.