THE PROFESSIONAL REFERRAL
`
`METHOD: A PIPELINE OF
`
`CORPORATE CLIENT REFERRALS
`
`EXECUTION GUIDE
`
`In today’s challenging environment, Plan Advisors are
`
`increasingly marketing not only to clients, but also to
`
`professional intermediaries who serve as gatekeepers
`
`to wealthy families.
`
`To accommodate this shift, Plan Advisors must change
`
`theirmess
`is Refera
`
`.
`
`ingfrom one that is Valuable to onethat
`
`This guide offers four specific strategies for executing a
`
`messaging process to this market. It provides instructions
`for creating warm introductions to professionals, then
`teaches how to develop a Referahle Me
`a e, structure
`
`a presentation for an intermediary and
`for an action.
`
`e a meeting
`
`AB ADVISOR INSTITUTESM
`
`For financial representative use only. Not for inspection by, distribution or quotation to,the general public.
`
`

`

`MESSAGES:
`
`VALUABLE VERSUS REFERABLE
`
`Meeting with professionals who function as trusted advisors to successful families requires
`
`a unique message—one that doesn't sell valuable services, but instead inspires referrals.
`
`We've all met them: professionals who function as trusted
`advisors to successful families. Increasingly, these professional
`intermediaries, such as CPAs and attorneys, have become the
`gatekeepers to accessing desirable new clients. This intermediary
`market requires a unique messaging strategy, one that will inspire
`the professional to make a referral to his existing client base.
`
`In this guide, we will look atthat new message, what it does and
`how it differs from the traditional approach used by most Plan
`Advisors (PAS). Let's start with a closer look at the kind of
`messaging we’re talking about. In the illustration below, we
`see two messaging processes, one on either side of the line.
`
`Below the line is the messaging process used with a prospective
`client who has been referred to the practice. Once someone has
`been referred, the process changes from a marketing process to
`an engagement and intake process. When this happens, the PA's
`messaging is directed to the prospective client and focuses on
`the wealth—management capabilities of the practice. This is the
`"Valuable Message.”
`
`Above the line, before the prospective client is referred, there is
`a different messaging process. When the PA is talking to the
`intermediary, the PA's task is to deliver a “Referable Message.”
`
`Messaging Meeting
`
`Decision to Collaborate
`
`-.
`‘Ad’ .'
`‘Mar
`
`—/v‘
`
`\—
`
`/
`
`THE REFERABLE MESSAGE
`Navigating the Capital Markets
`
`THE VALUABLE MESSAGE
`
`Wealth-Management
`Competencies
`
`Discovery Meeting
`
`Engagement
`
`Prospect %
`
`THE PROFESSIONAL REFERRAL METHOD 1
`
`

`

`HOW WE GOT WHERE WE ARE TODAY
`
`A retrospective look at the industry is necessary to help us understand the changes in our
`
`culture and our economic environment and howthose changes influenced our industry.
`
`Over the past 30 years, the Baby Boomer generation has
`represented an important and formative influence on the
`financial-services industry that has affected how PAs designed
`and managed their businesses. Understanding the Baby Boomers’
`experience with financial services over these years gives insights
`for constructing more effective outreach messaging that will help
`attract new clients to a practice.
`
`Let’s start by observing the trajectory of growth and plateaus of our
`industry over the past 30 years. In 1981, 5.7% of households in the
`US had a mutual fund investment—a relatively low penetration rate.‘
`In this case, were using ownership of mutual funds as a representation
`of the public’s engagement with the financial markets. Mutual funds
`have been available since the 1930s, but until 1981, only a small
`percentage of the population was invested. Suddenly and explosively,
`the culture embraced mutual fund ownership. Ownership maxed out
`at 47% of households by the mid-2000s and then declined slowly.
`
`The financial-services industry expanded along a similar trajectory,
`from 171,000 brokers in 1975 to more than 770,000 Registered
`Representatives in 2000.9 What caused this explosion of growth?
`Demographically, the oldest Baby Boomerturned 35 in 1981,
`followed by 78 million others (approximately four million a yearfor
`20 years). When we look at the statistics together, it seems likely
`that aging Americans began purchasing mutual funds and that the
`industry grew to accommodate the demand.
`
`EXPLDSIVE GROWTH LEVELED OFF
`
`"he growth was explosive for the first 20 years, but then leveled off.
`"his helps to explain why growth rates of individual PA businesses
`have been far less robust in recent years. Fewer PAs survive the
`challenges of starting their own practices in this environment. Even
`established advisors have seen a steep decline in organic referrals.
`“The way we’ve always done it” no longer applies. The business-
`management and client-management requirements for building a
`successful business have increased dramatically.
`
`This expansion and leveling off have significant implications for
`outreach messaging. During the rapid growth from 1975 to 2000,
`advisors enjoyed the combination of expanding engagement,
`falling interest rates and a bull market in equities. This created a
`powerful and positive response potential in the culture: Everyone
`knew someone who was investing and making money, and as
`the economy prospered, more people wanted to hire a PA. New
`investors talked about their advisor with friends, and these
`endorsement referrals stimulated new business. Cold calling
`worked. Advisors could describe what they did and expect
`prospective clients to respond.
`
`Overtime, the industry became saturated with the same standard
`types of messages, and potential clients experienced message
`fatigue. Eventually the “Do Not Call” list was created to block
`unwanted solicitations (a natural development when too many
`sellers are chasing a finite number of buyers). By the early 2000s,
`
`1 investment Company institute, 2010lni/estrnentCompany Fact Book and 2011 Investment Company FactBool<, as of December 31, 2013
`2 Financial Industry Regulatory Authority and US Bureau of Labor Statistics, as of February 2014
`
`2
`
`

`

`two things happened: everyone who had money was working with
`one advisor (or more), and the industry experienced the first shocking
`correction of the decade. Eventually, as the crisis of 2008 unfolded,
`much of the positive euphoric excitement of investing had been
`dampened, and a much more pessimistic (some would say realistic)
`culture of investors had evolved.
`
`It should be no surprise thatthe messaging that worked in the 1980s
`and 19905 doesn’t work as well today. Since the early 20005, a new
`kind of referral has emerged—the prescriptive referra|—in which
`an investor or a professional makes athoughtful case to a person
`he knows and cares about, explaining how a particular advisor can
`help. Motivating someone to make this kind of referral is challenging
`because of additional, powerful forces at work in our culture.
`
`UNEOUAL DISTRIBUTION OF WEALTH
`One of these forces is how wealth is distributed in the United States.
`
`Rather than being distributed evenly, wealth is controlled by avery
`small percentage of the US population. In fact, the top 1% controls
`more than 40% of the total wealth in the country, and the top 10%
`controls 75% of the wealth.3 This means that in the US, afi of the
`liquid, investible wealth is controlled by 10% of the population. It also
`means that 10°/o—fewer than 110 million households in the country-
`represent meaningful clients forfu|I—service PAs. In practical terms,
`this means that there are about 11 million families who have $1 million
`or more in investible assets and have the kind of complex financial
`lives that require a full-service PA.
`
`To put this in even starker perspective, there are more than
`300,000 client—facing advisors pursuing their ideal client
`investor—an individual or family with $1 million or more in liquid
`
`assets. It’s avery crowded industry of highly motivated advisors
`chasing a relatively small number of clients, most of whom already
`work with at least one advisor.
`
`While there are 300,000 Plan Advisors actively serving the investing
`public, all but a few of them collect less than 40% of their income
`from defined contribution (DC) plans. That leaves only about
`4°/o—approximateIy 12,000 Plan Advisors—who have an active
`DC business. That means they receive more than 40% oftheir
`income from DC plans. These 4% of advisors are considered leaders
`in the field: they control 47%, or almost half, of all advisor-sold DC
`assets in the US.
`
`What makes these PAs so successful? How do they build their
`book of business, and what makes plan sponsors loyal to these
`high—performing advisors?
`
`OVER-TARGETED AND OVERWHELMEO
`
`Plan sponsors are busy executives with many responsibilities. They
`often protect themselves from the multitude of vendors who vie for
`time by finding a few trusted advisors and listening to their advice.
`
`In most cases, these advisors are typically CPAs, ERISA attorneys,
`insurance agents or benefit consultants. Research has shown that
`such trusted advisors have become the gatekeepers to the wealthy.
`In a 2007 study by AB, 800 high—net-worth families were asked,
`“The last time you changed Plan Advisors, what did you do?” The
`entire 100% of the families answered, “We asked our CPA or attorney
`for a referral.” So, how does a Plan Advisor get an introduction to
`those gatekeepers?
`
`3 Dale Archer, “Could America’s Wealth Gap Lead to a Revolt?,” Forbescom, September 4, 201 3; Credit Sulsse Research institute, Global Wealth Databook 2013;
`and Eric Zuesse, ‘United States is Nowthe Most Unequal of All Advanced Economies," HuffingtonPost.com, December 8, 2013
`
`THE PROFESSIONAL REFERRAL METHOD 3
`
`

`

`HOW TO GAIN AN INTRODUCTION
`
`TO CPA FIRMS
`
`Cain an introduction to a gatekeeper by following this four—step process that can
`
`be executed via telephone.
`
`A FOUR-STEP PROCESS
`
`Step One: Introduce yourself and your firm, then ask afavor. In his
`book influence: Psychology of Persuasion, Robert Cialdini describes
`the natural tendency of human beings to respond positively to afavor
`asked by a person they know, even if they don't know him well.
`
`Step Two: Explain that, as part of your job, you're expected to
`maintain agroup of resources to which you can refer your clients
`for specialized services. Say, “I don’t think I know your CPA. May I
`ask you a few questions about the person you work with?"
`
`Step Three: Ask the seven questions noted here about the CPA
`(or attorney) to determine if that professional might make a good
`resource for yourfiles. In this “mini—discovery," you not onlyfind
`out important information about the professional, but steer the
`conversation toward asking for a personal introduction. The
`questions clarify the nature of the professional's practice and
`generate an understanding of the client/professional relationship.
`The last question is, “Would you be willing to introduce me to this
`person?” Experiences in the field indicate that the majority of people
`who are asked to do afavor and introduce their CPA or attorney to
`their PA will happily do so, especially if the PA makes it easy to give
`the introduction.
`
`Step Four: Offer an easy way to make the introduction. Recommend
`that the client introduce you to her CPA via e—mail and suggest that
`there might be a reason to talk.
`
`As a result of this approach, the professional, who has been
`recommended by his own client, is much more likelyto be willing
`to meet you and is likely to come to the first meeting with greater
`interest in making this new connection.
`
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`

`

`HOW TO GAIN AN INTRODUCTION
`
`TO AN RA OR A PROFESSIONAL
`
`There is a similar process for gaining warm introductions to other retail advisors (RAs)
`and professionals.
`
`GAININE AN INTRODUCTION TO RETAIL ADVISORS
`
`When seeking an introduction to another retail advisor, it is important
`to remember that some may see you as competition, even if you
`specialize in plans and have no intention of competing with them
`for retail relationships. As a result, it's helpful to approach potential
`collaborators through their manager.
`
`1. lntrod uce yourself and your firm: “Hello. This is [name] from
`the [location] office.”
`
`2. Explain why you are calling: '‘I’m calling to see if you would
`be interested in working with me to expand some business
`opportunities within your office. Specifically, I work exclusively with
`401(k) plans and have had some great experiences collaborating
`with other advisors in our firm to help them take advantage of
`opportunities in their book of business. I have found that there are
`usually one or two very strategically minded advisors in an office who
`want to focus their work with higher—net—worth investors and don't
`want to dilute their efforts by dabbling in the retirement plan space."
`
`3. Introduce the idea of collaborating: '‘It’s been my experience
`that they can collaborate with me as a specialist to engage the pian
`opportunities within their book; enjoy essentially effort—free revenue,
`which adds to your bottom line: and be able to remain focused on
`their core business. I'd be interested in working with you to find the
`one or two advisors in your office that think strategically like this."
`
`4. Inquire if there are any clients who could benefit from this
`type of collaborative effort: "Does anyone you manage currently
`come to mind?"
`
`5. Ask for an introduction: “Would you be willing to facilitate
`an introduction?"
`
`GAININC AN INTRODUCTION TO OTHER PROFESSIONALS
`
`There are other gatekeepers who are professionals—such as
`ERISA attorneys, corporate benefit specialists and insurance
`brokers—who can also make referrals. We follow the same
`
`four—step process outlined on page 4.
`
`Step One: Call and introduce yourself and your firm. Ask a favor.
`
`Step Two: Explain that, as part of yourjob, you're expected to
`maintain agroup of resources to which you can refer your clients
`for specialized services. Say, "I don't think I know your [name the
`type of professional]. May I ask you a few questions about the
`person you work with?"
`
`Step Three: Ask the seven questions to conduct your
`“mini—discovery.”
`
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`Step Four: Offer an easy way to make the introduction. Recommend
`that the client introduce you to this professional via e-mail and
`suggest that there might be a reason to talk.
`
`As a result of this approach, the professional, who has been
`recommended by his own client, is much more likelyto be willing
`to meet you and is likely to come to the first meeting with greater
`interest in making this new connection.
`
`CREATING THE REFERABLE MESSAGE
`
`Once an opportunity to meet with a professional has been secured,
`the next step is deciding on the messaging. That messaging cannot
`be the traditional “Lead With" description of what you do for your
`clients,‘ every CPA and attorney knows what a PA does. This is what
`we referred to earlier as the Valuable Message.
`
`instead, consider a “Lead To" communication strategy, which uses a
`Referable Message. Don'tjump into an explanation ofthefeatures
`and benefits of a product (the Lead With the product approach).
`Rather, use a Lead To strategy and offer an observation of an
`event occurring in the capital markets that can cause a problem
`for investors. The conversation must include a powerful Referable
`Message that motivates action.
`
`THE PROFESSIONAL REFERRAL METHOD 5
`
`

`

`To properly create this message, it’s helpful to understand how
`human beings become motivated and make decisions. When making
`a decision to take action, a person uses two different parts of the
`brain. The rational part of the brain (the neocortex) uses information
`to understand the meaning of a decision, that is, whether or not it is a
`good idea. But understanding the meaning isn’t enough to motivate
`action; actions require feelings to be activated. The emotional part
`of the brain is located in several places: the brain stem and limbic
`system are involved with generating feelings. When it comes to
`making a decision about risking a referral, the professional needs to
`balance the strong feelings that motivate action with clear thinking
`about why making the referral is a good thing to do.
`
`Your main tool for helping professionals make this kind of decision
`is language. The choice of words, and the illustrations used to
`accompany those words, will determine what kind of motivation
`is created in the other person. Once the professional recognizes
`the painful problem, she becomes motivated to act. This allows
`you to migrate the conversation to an introduction of the product,
`service or idea that solves a painful problem.
`
`The key point is not to Lead With the ultimate solution (the
`desired outcome ofthe meeting) but instead to Lead To a
`conversation about the solution from a different starting
`place, one that prepares the recipient‘s mind to see the
`solution as a remedy to a painful problem.
`
`LOSS AVERSIDN MOTIVATES ACTION
`
`The largest challenge you face when asking a professional for
`a referral is how to motivate action. We discussed earlier that
`
`effective language or an impactful message motivates people.
`Studies have shown that a desire to avoid negative sensations
`(loss aversion) is the primary motivator of all human behavior and
`activity—even in highly rational professionals. Research into loss
`aversion shows that someone who experiences the potential of loss
`or has experienced an actual loss feels a great deal of pain. This pain
`can be in the form of fear or dread. Such fear and dread become
`
`the organizing principles for behavior and stimulants of activity.
`
`In the absence of pain, pleasure can motivate some actions; however,
`research in behavioral finance has shown that avoiding pain is at
`least twice as motivating as achieving pleasure. This means that
`your main task is to frame an idea so that the primary motivator of
`behavior, avoiding pain, is activated within the other person. Framing
`an investment strategy as attempting to “solve a potential problem”
`serves this need and helps the CPA or attorney understand why
`the story is important to some of the people she cares about in
`her practice.
`
`SIX CRITERIA FOR A REFERABLE MESSAGE
`
`These insights into the thinking/feeling and pain/pleasure aspects
`of building powerful messages help us build our Referable Message.
`There are six distinct criteria that must be in any message and should
`guide the selection of the kinds of stories you present.
`
`+ The idea must be asingie clear idea that is easy to understand in
`five to 10 minutes. lnitiallythe professional won’t expend much
`energy trying to understand the message, so it should start out
`clear, easy to understand and as singular as possible.
`
`- The idea must register as significant, as an important concept in
`the mind of the professional. She must have an internal “wow”
`response to the information and feel strong emotions as you tell
`the story. The best way to do this consistently is to talk about
`disruptions that represent dangers in the capital markets that
`some of the professionals clients are exposed to.
`
`You must present a solution that is available immediately. The
`professional must register that the benefit of engaging your
`services provides an immediate value to a referred client.
`
`You must appear to be a superior provider compared to others
`who offer similar services. The professional must conclude that
`you are an expert who is superior to others in the market.
`
`The message must cause the professional to think of someone in
`her practice that would benefit from the message being delivered.
`
`The message must conclude with a next step that the professional
`can take to engage you. This step should represent a no-risk and
`no—cost way foraclient to receive some value from you without
`having to totally disrupt his current financial life.
`
`

`

`DURING THE MEETING
`
`When meeting with the professional, it's important to manage time effectively. To do so,
`
`the story must be presented in the most influential manner possible.
`
`Start by introducing a problem that will potentially impact at least a
`few of the professionals clients. This creates a “burning platform"
`problem that allows the story to achieve relevancy quickly. With this
`in place, reveal the mechanism in the capital markets that creates this
`problem, and then explain why it's something to be concerned about.
`For the other person to respond to the message, he must understand
`how the problem happens and why it's something to be personally
`concerned about. if these first three steps are accomplished
`successfully, the rest of the presentation will be personally
`meaningful, and motivating, to the professional.
`
`Most advisors are familiar with the final three steps: propose a
`solution, reveal the mechanism (explain how the recommended
`solution works) and then close for a next step. In this case, the
`next step should be an action that the professional can take that
`represents little or no risk as well as little or no cost but that gives
`the other person an easy way to get value from the advisor.
`
`While many advisors are skillful in the propose—and—close process,
`most advisors do not provide the first three steps, which create a
`meaningful framework for why the professional should listen to the
`proposal and risk making a referral. Forthe message to optimally
`motivate, more than half of the presentation should be concerned
`with the reasons why investors need to be concerned about a
`potential problem and possible losses so that the professional
`will become motivated to refer.
`
`Once the message has been delivered and the professional
`understands the importance of the message and has credited
`the PA with the superior knowledge, it’s important to close the
`meeting for a next step, the final step mentioned above.
`
`CLOSE THE MEETING
`
`if you don’t close the meeting, you're unlikely to receive many
`referrals. Clearly tell the professional what you want: explain the
`next step. The closing process illustrated here consists of a series
`of statements and questions that move the professional from
`understanding the problem and the risk her clients are exposed
`to into considering taking a next step: working with you.
`
`Step One: Conclude the information delivery part of the meeting and
`transition into the end of the meeting by asking, "Was this helpful?"
`By asking this question, you signal a move to a different stage of
`the conversation.
`
`Step Two: Prime the professional to think about possible clients who
`might benefit from your help. He may already have someone in mind
`based on your earlier messaging. Ask, "Would this be helpful
`fore?" and name a particular group within the practice
`that might benefit from the proposed solution. This forces the CPA
`or attorney to think of someone who is exposed to the problem and
`who might benefit from that solution. Experience in the field has
`shown that the CPA or attorney is likely to respond, “Yes, I can see
`how this would be helpful fore ."
`
`Step Three: Close the meeting by asking, " Let me make you an offer.
`Would it make sense for us to
`.9" and recommend the action
`
`the professional should take. This is the no—risk, no—cost step that
`makes it easy for the professional to get started. Examples include:
`offerto perform a portfolio analysis, review some account materials
`or provide a second opinion on a portfolio.
`
`In the case where the professional responds, ‘‘I’m not sure if this
`would be applicable; most of my clients already have an advisor,”
`respond with: "You sound like you're uncomfortable with making a
`referral to my practice. I can rgertainly understand you not wanting
`to alienate the other advisors you work with. As an alter native. what
`if. instead of sitting down with one of your ctients. I put together a
`seminar for a number of your clients as an educational opportunity’?
`This way, you wouldn't have to run the risk of making a referral to my
`practice, but your clients would still get the benefit of the information."
`
`The idea is that no matter howthe professional responds to the
`invitation to move forward, you have a clear way to advance the
`relationship. lfthe professional still doesn’t agree to a next step,
`put him on a list for future contacts. Sometimes it takes several
`different ideas before the professional becomes comfortable
`making a referral.
`
`THE PROFESSIONAL REFERRAL METHOD 7
`
`

`

`DEDICATED SCHEDULING
`
`Experience with Plan Advisors shows that it's diH‘icult to execute on this model unless
`time is dedicated to outreach.
`
`Frequently making the time for outreach is the hardest part.
`Experience with PAS who are managing a large and complex
`practice has demonstrated that it’s difficult for many to execute on
`this referral model unless they set aside specific time to schedule
`and hold meetings with professionals on a consistent weekly basis.
`
`lt's recommended that you set aside two to fourthree—hour blocks
`of time in your weekly schedule for meetings with new professionals
`and for meetings and follow-up engagements with professionals who
`have been previously contacted. We strongly encourage that you set
`aside those blocks at the same time every week for at least a six- to
`nine-month period.
`
`By setting aside specific times to do outreach, meetings become a
`priority—the most important activity for that period of time. Instead
`of deciding to get around to outreach wheneverthere’s time, we
`recommend fitting everything else around the outreach activity. Make
`a commitment to these activities, and complete an adequate number
`of meetings to populate a meaningful pipeline of referrals. Not every
`professional the advisor meets will make a referral in the first meeting,
`and some may not refer even after several follow-up experiences.
`
`In the long run, the persistent advisor—who dedicates the time, builds
`a Referable Message and Leads To a conversation about an effective
`solution—is likely to build a group of fully engaged collaborators who
`value the advisor’s expertise.
`
`Monday
`
`Tuesday
`
`Wednesday
`
`Thursday
`
`Saturday
`
`..G.I:treach, Meetings
`
`0fl3t=.reaT:13 Mesatin gs
`
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`
`

`

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