Clients Less Comfortable With Referrals Than Advisors Think

By Cyril Tuohy

InsuranceNewsNet

Clients take an average of 4.8 years with a financial advisor before they feel comfortable recommending the advisor to someone else. This is more than twice as long as advisors seem to think it takes, according to new research by Prudential.

Recommending a financial advisor also comes with a high degree of “social risk” for clients, as referrals don’t always work out. Not surprisingly, given the sums of money involved and the length of a potential client-advisor relationship, recommending financial advisers is riskier than recommending many other licensed professionals like doctors, dentists or accountants, the survey also found.

“While the length of the relationship with an advisor is a key consideration for clients making referrals, there are many other factors that are likely to influence clients’ decisions,” said Rodney Allain, senior vice president and national sales director for Prudential Annuities.

The white paper, titled “Referrals: A Matter of Trust,” was commissioned to offer insights into the mind of the client. Data used in the study was collected in 2011 from 800 clients and nearly 400 advisors.

Clients were asked whether they had referred their advisor, and, if so, whether they had done so within the last year. A total of 56 percent had provided referrals, and another 36 percent would consider doing so, the survey found.

Factors that are most likely to play a part in the referral include an advisor’s accessibility, the advisor’s ability to set realistic expectations, the honesty and transparency with which an advisor discloses income from fees and commissions, the advisor’s attention to holistic planning beyond investment returns, and the perception of the advisor’s firm, the survey found.

Accessibility and honesty have always been key factors as qualities necessary for an advisor to gain a referral, but “the length of the client relationship to building trust and referrals may be underestimated,” Allain said, in a statement.

Clients take an average of 4.8 years to feel comfortable before issuing a recommendation, but financial advisors think it takes clients just 2.1 years before they earn a thumbs up to friends and family.

Advisors can increase the frequency of referrals by “knowing the appropriate time to ask,” the report also said, though, as advisors know, that is usually more of an art than a science. Still, advisors can increase their chances of being referred by tracing where clients fall along a “referral curve,” and then by addressing areas where they fall short.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].