The report, “Referrals: A Matter of Trust,” reveals that clients take on average 4.8 years to be comfortable recommending their financial advisor, more than twice as long as the 2.1 years on average advisors thought. The paper underscores the relevance of client referrals, with 56 percent of clients having provided referrals and an additional 36 percent saying they would consider doing this.
“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. “By surveying both clients and advisors, this white paper provides valuable perspective on the drivers of client referrals.”
Clients who were more likely to refer their advisors rated their advisor “excellent” or “very good” at setting realistic expectations about investment returns (86 percent), delivering on what was promised (86 percent), and achieving strong investment performance (79 percent). Notably, 80 percent of these clients rated their advisor highly on disclosing their fee levels.
The study was based on data collected in 2011 from 800 clients and nearly 400 advisors.
The paper notes that clients value a broad set of services beyond simply generating investment returns. For example, 64 percent of clients who were likely to refer their advisor had been provided with a written financial plan, compared to only 46 percent of clients who were less likely to provide referrals. Similarly, receiving advice about generating steady retirement income and preserving and protecting savings tracked with a higher likelihood of providing referrals.
Firm stability and expertise are also important factors in the referral process. Clients value the stability of the firm with which advisors are associated and are more likely to make a referral if the advisor has been with the firm for a significant period of time. Furthermore, advisors who are able to draw upon “in-house” expertise to assist with unique planning issues, such as advanced tax planning or health care, were more likely to secure referrals.
The paper reinforces the importance of strong relationship management skills to the referral process. Advisors who are accessible, listen well, ask questions to fully understand their clients’ needs and take actions based on what they have learned are significantly more likely to receive referrals.
“There are clearly a number of steps financial advisors can take to increase the likelihood that a client will make a referral,” said Allain. “While the value of performance and communication are well understood, the importance of the length of the client relationship to building trust and referrals may be underestimated. Tracking relationships and following up with clients when they are most receptive to secure referrals is one additional dimension to the referral picture.”
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Annuities are issued by Pruco Life Insurance Company (in New York, by Pruco Life Insurance Company of New Jersey), Newark, NJ and distributed by Prudential Annuities Distributors, Inc., Shelton, CT. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations. Prudential Annuities is a business of Prudential Financial, Inc.
