The right referrals can help take your advisory to the next level. Networking with other professionals is crucial to an independent investment advisor’s success. It’s especially important for independent advisors who are new to the game and for ones who wish to push their books up-market. In the first instance it means more business. In the second it can mean that and form the basis of a holistic and best-of-breed wealth management offering.
In 2003, investment advisories with less than $1 billion under management that served deca-millionaires gleaned 24% of their new business from referrals provided by lawyers, and 19% from accountants, according to a survey by the Institute for Private Investors, a New York-based education resource for ultra-wealthy families.
All the difference
In addition to providing new business, having access to a network of wealth professionals enables investment advisors to make referrals that fit their clients’ needs. Being able to do that consistently – and by providing impartial advice that helps clients make informed choices – can mean the difference between financial planning and wealth management. In other words, outsourcing and prudent referrals can put a small advisory in the running for big clients.
Carol Pepper of Pepper International, a New York-based multi-family office, says that a trusted advisor can become a most-trusted advisor by putting herself at the center of a network of wealth professionals. For an investment advisor, that calls for coordinating the services not only of attorneys and lawyers but also asset managers, insurance specialists, bankers and experts in philanthropy.
And at that level your Rolodex can never be too big. “The number of [contacts] you need depends on the kind of clients you have and the complexity of their needs,” says Pepper. “You might need a good tax lawyer, a good international lawyer, and you might need one who knows Mexican property law. There are an infinite number of needs, and the hardest thing these days is finding specialists to meet them all.”
But networks require care and feeding. Pepper has about 2,000 referral contacts, and she makes a point of reaching out to each of them on a regular basis. “You may not be able to make the referral right away, but it’s important to stay in touch,” she says.
Although providing sound out-bound referrals to help clients realize their goals is an indispensable part of wealth management, making sure the referrals are coming in is also imperative. At least it is for start-ups and small advisories that want to grow. In that regard some advisors have resources that are unavailable to others.
Where available, qualified independent advisors can avail themselves of custodian-run referral programs. But the qualifications are stringent. TD Waterhouse’s institutional clients who want to take part in its AdvisorDirect referral program – which is just getting off the ground – have to have been investment advisors for at least 10 years, have at least $25 million in assets under management and undergo a rigorous vetting process. Only 300 or so of the 5,000 independent advisors who custody assets with Schwab Institutional are in that company’s Advisor Network referral program. (Though some that could qualify, or have participated, have opted out in order to forestall referrals they’re too busy to entertain, says a Schwab spokeswoman.)
One solution for advisors who can’t draw on referral sources affiliated with their service agents is to build networks through knowledge. Newkirk Products, a custom publisher based in Albany, N.Y., puts out a quarterly newsletter called R&D that’s specifically designed for investment advisors who want to reach out to attorneys and accountants. The newsletter’s “distributors” range from small advisories to large financial institutions.
Building a discipline
The four-pager provides in-depth analysis of financial and estate-planning issues as well as legislative and regulatory updates. It can be customized to include the advisor’s firm logo, some original content and – most important, says Newkirk v.p. Ellie Alexander – the advisor’s contact information and an invitation to respond. Some advisors include a separate, postage-paid card that itemizes their areas of expertise in a checklist format, and asks the targeted professional to indicate the products and services he might require of an investment advisor.
A useful next step is to follow up by requesting an in-person meeting or a telephone conversation, says Alexander. And follow-up phone calls, at least once a year, are a good way to maintain ties with referring professionals. Alexander suggests calling each newsletter recipient once a year at least. “Suppose we’re talking about 100 contacts, how hard is it to make 25 phone calls a quarter?”
Newkirk’s minimum for orders of R&D is 100 copies. The price declines for larger orders, but the cost for an order of that size is 90 cents a copy, plus postage – and Newkirk can secure bulk postage rates. “The cost is minimal,” says Alexander. “But it puts in place a discipline for building a network.” –FWR