Lead generation has gone soft.
In the post-global financial crisis (GFC) environment, some might have expected the art of lead generation to have gone stone cold given the volatility in investment markets, disappointed clients and advisers' reluctance to ask for a referral.
Yet the reality is that for some advice businesses, lead generation has taken a giant leap forward. It has truly evolved and in some cases is now more structured and formalised than ever before.
The key change is a renewed focus on servicing the needs of existing clients and forging even stronger relationships with them. Using these relationships as a strong platform, advisers can leverage their businesses and reinforce their value at the same time.
An old strategy but a good one
Client referrals and centres of influence (COI) are certainly age-old techniques when it comes to building business.
Done well they can be incredibly effective. They are also cheap. "Client referrals cost a cup of coffee - $3.50," Non Executive Management principal David Phelan says.
According to FPA chief executive Mark Rantall, when the industry first began most planning businesses relied on seminar activity and building COI with accountants.
However, today there is a greater focus on referrals from existing clients, with COI being the second largest source of referrals.
"Lead generation is everything. It is the heart and soul to prosper any business. It needs to be obsessed about and structured," CFS Advice general manager Paul Barrett says.
Proof of the potential for success with effective lead generation is in the numbers. Strategic Consulting and Training (SCAT) managing director Jim Stackpool says hard evidence shows an adviser seeking referrals from existing clients should translate into two referrals from every three active clients.
This means for every 100 existing clients, 66 new referrals are possible.
However, Stackpool says the same research also shows the real conversion rate is much lower, with most planners only able to source one referral from every four clients. This means only 25 per cent of new business is coming from their existing client relationships.
Further, while this ratio can be improved to as high as three out of four clients, an even better model for planning businesses is to strive for two out of three client referrals to come through COI or strategic alliances.
Lead generation traps
Generally, the natural progression in lead generation is for a business to first get its client referral process right and then to move into the domain of COI. This is because client referrals are the key piece focusing on people, the bread and butter of any planning business.
But getting both of these strategies right is not easy. "It's pretty hard work. They've [planning businesses] got to roll up their sleeves. They need to devote time and money to go and do it," Phelan says.
Unfortunately the commonsense nature of lead generation can make some practitioners complacent and dismissive about the process. Further, business managers can get too busy working on other seemingly more pressing projects rather than worrying about sourcing new clients.
In fact, according to Phelan and Stackpool, only a small number of planners in the industry do lead generation well and have developed techniques and processes around client referrals.
Phelan says ultimately success with client referrals comes back to being in the right mindset. "Unless you have this, you can't do it," he says.
AMP Financial Planning chief executive Michael Guggenheimer agrees. He says for some planners, lead generation is an event rather than an experience and quite often when planners are busy, they tend to forget to look for referrals.
The other real factor is that some planners find it difficult to ask for referrals. And reportedly in the post-GFC environment, planners are even more reluctant to ask clients for a referral.
"There has been a reluctance to ask for referrals during the GFC," Rantall confirms.
Lonsdale Financial Group general manager of business managers Mark Stephen agrees. "There is no doubt that the GFC has made an impact. It's a fact of life really," Stephen says.
To some, this response seems like a bit of a cop out. "Advisers say referrals have dropped off the last couple of years, those that are volunteered by clients. But that does not mean advisers can't move forward because people still need to do something," Phelan says.
Barrett agrees. He says if anything, during tough times clients are more engaged and are driven by a desire to fly to safety. "They want help from trusted providers," he says.
Guggenheimer says for the good practitioners, the GFC has not had a big impact on client referrals.
"Financial planning brings discipline, strategy and structure to a relationship. Whether there is a GFC or not, these fundamentals should be there. For those who aren't as disciplined, they may struggle," he says.
It is for many of the above reasons that COI can also be relegated to the too hard basket. Questions like how to find like-minded accounting, legal or mortgage broking firms that can be trusted with your clients and vice versa are common. Further, how should such arrangements be structured and how many cross-referrals should be expected?
As a result, Stackpool says most alliances are transactional based and are fairly unstrategic. That is, whatever new business they can get from an alliance they will take. So there is a focus on quantity ahead of quality.
A failure to formalise these arrangements often means they die off.
How supported is lead generation?
Lead generation is being actively integrated into the training structures of financial planning networks, a further indicator of the importance and recognition it has in the industry and the importance of soft skills.
Over the past three years the FPA has conducted quarterly courses on client referrals with over 250 planners attending.
In the past 18 months it has conducted effective referral management courses to help advisers and accountants understand the potential opportunities with COI, with another 150 planners attending this course.
The Association of Financial Advisers (AFA) also provides its members with content and conferences, roadshows and professional development days on lead generation. Through its Secrets of Success or SOS mentoring program, AFA also matches experienced practitioners with rookies to further facilitate the exchange of ideas on the issue.
The AFA's Fellow Program covers lead generation formally under the topic of practice management.
Stephen says its Catalyst program, which it has now also replicated as a support tool for accounting businesses, includes a module dedicated to the whole area of client referrals and COI.
Meanwhile, a planner who joins AMP Financial Planning or its Horizon Academy will attend workshops on client referrals and how to deliver good-quality service. Professional development days using external trainers are also used.
"It is part of our client experience and sales management," Guggenheimer says.
The softer approach
"Successful relationships foster strong client referrals," AFA chief executive Richard Klipin says.
Planning businesses certainly agree it is a lot easier to gain referrals, both client and professional referrals, from someone who has a satisfied experience with the business. While this is not rocket science, what has been brought into sharper focus is the importance of soft or people skills, which in turn make clients a more willing and effective source of referrals.
Importantly, this softer approach does not involve asking a client to give six names or cold-calling accounting practices as possible COI partners, even though some businesses still do this.
What many businesses and networks are now focusing on is nurturing client relationships to build even stronger relationships with their existing clients and form a stronger foundation from which to gain more effective referrals.
Phelan says such an approach actually increases the trust that already exists between a client and their adviser.
"When a client refers a friend or a colleague and you achieve a good outcome, it confirms the trust the client put in you and makes them feel better in their trust with you," he says.
According to Klipin, this evolution in lead generation reflects the industry's wider move from a transactional to a relationship-based business.
"Good practices are about long-term relationships and they know how to build client relationships," Klipin says.
For Lonsdale, this means delivering a service and building referral relationships built on qualities such as trust, confidence and integrity as well as professional standards.
"We pride ourselves on being technically sound but we build on the soft skills. It can't be taught. You can be technically sound, but we are moving more into areas of soft skills," Stephen says.
Barrett says the biggest change he has seen in the techniques used to build referrals has definitely been around focusing on the needs of clients rather than on the product. Commonwealth Financial Planning currently sources 40 per cent of its referrals from its existing client base.
Barrett says those planners who are now doing well obviously put in the time to build referrals even in the period of economic expansion.
Techniques that work
One of the critical ingredients to success with client referrals is laying the groundwork with an existing client before asking them for a referral.
"Position the discussion before asking for referrals by asking a question on the value of the relationship. You can use this as the foundation for moving to the next stage," Phelan says.
"If you are talking up the value of the relationship, you have got greater opportunity to use the information to say you could help with friends in the same way." The next step is to thank the client for suggesting someone and asking them whether it would be appropriate for you to contact them or perhaps they could ask their friend on your behalf. Confirming you will not proceed if their friend is not interested is also important.
Once you have the name of a friend, then you have to make sure you end up in front of the friend. It is important to have an agreed time frame on how long it might take your existing client to speak to their friend.
"You've got to find an excuse to call the client about something else and then say, 'by the way, how did you go with your conversation with Jack?" Phelan says.
Of course, the most important person in this relationship is the existing client. So how does this process apply in the case of a new business with new clients?
Because new businesses don't have the existing relationship with their clients to use as a referral platform, Phelan says they need to focus on what the client values from the advice process itself. He says the best time to ask new clients for a referral is at the plan presentation stage.
It is interesting to note, Stackpool says, younger practitioners are more willing to learn and give SCAT's 11-step referral process a try compared to more experienced planners.
He says the latter often feel they have tried sourcing client referrals in the past and it hasn't worked, most likely because it wasn't done properly.
Meanwhile, when it comes to COI, financial planners say they have been quite successful in establishing relationships with mortgage brokers, insurance brokers, lawyers and accountants.
However, Phelan says few are working or attracting the 12-15 per month referrals they should be.
While cold calling potential COI still occurs, the best way to source a COI is to identify a like-minded business and to source this referral again from an existing client.
Phelan says accountants present the best opportunities for planning businesses because if you look at surveys on who clients go to first, accountants "win by miles".
But to establish a good relationship with an accountant and to achieve at least 12 referrals a month with a 70 per cent to 80 per cent conversion rate, planners must have accountants attend client meetings with them.
They must also discuss how the process can enhance the accountant's relationship with their client and the consequences of not referring a client.
Lead generation in practice
The AFA's recent Rising Star and Adviser of the Year Awards displayed some innovative referral techniques currently being used in the marketplace.
Klipin says one practice hosted a movie and golf night to thank its existing clients for their support and to create communication in the client base with the opportunity to invite others to attend. Another business held an event for its client base, which mainly consisted of people working in the medical profession. Knowing its audience loved rugby union, the business organised a speech given by Australian rugby coach Robbie Deans. Again there was the option to invite friends.
"You have got to find a cultural fit to your client base. It's not about writing business, it's about establishing relationships," Klipin says.
In this vein, another awards finalist said he saw himself as a personal coach for his clients and therefore offered his clients gym memberships because this was in line with his value proposition as a coach.
A systemised approach to both client referrals and COI is important because it allows planners to ask clients if there is someone else they can be introduced to. Guggenheimer says AMP Financial Planning talks to planners about prospecting and servicing clients and how to make sure the client values what they have done. Work-flow management and client satisfaction are also areas of focus.
Success comes from the delivery and satisfaction of the client's needs and making sure the experience was a good one.
When working to develop professional referrals, AMP Financial Planning looks to make sure any arrangement is formalised down to inclusion in its financial services guide. However, ultimately it is trust and common goals that make referrals work and where they don't work is where there is a cultural mismatch.
Not surprisingly, Commonwealth Financial Planning's largest referral partner is the bank and it has bank and branch meetings three times a week to discuss referrals. Meanwhile, its other planning arm, Financial Wisdom, sources its referrals from accountants and mortgage brokers.
While many years ago Commonwealth Financial Planning may have relied on the bank for its referrals, Barrett says its referral channel is evolving similarly to Financial Wisdom to include also accountants and lawyers.
