Getting to know referrals

As Peter F. Drucker says in his book, Management Challenges for the 21st Century, “One cannot build performance on weaknesses, let alone on something one cannot do at all”.

This quotation serves as a great reminder for financial planning practices to recognise the strengths that already exist within the business, but also to think about how to turn potential weaknesses and challenges into strengths and opportunities by getting some help from outside experts.

As the old adage goes, “You can’t be everything to everyone”. If, as an adviser, you have a niche and you are passionate about it, your energy would be better spent on becoming a specialist in those areas, rather than focusing on becoming mediocre in something that is not your natural skill set or holds limited interest for you. This is where redirecting your energy towards building referral relationships instead can be a real advantage.

Be true to yourself

When thinking about ways to grow your business, it is important to take some time and do an honest self-assessment. 

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Having the ability to meet the broad range of your clients’ financial needs does not necessarily mean you have to diversify your own services. Instead, you can partner with other specialists while you focus on what you do best. 

Building a stronger and broader network of referral relationships with accountants, mortgage brokers or risk specialists means you can offer your clients access to experts in a broad range of areas while maintaining the relationship with your client. 

Getting the basics right

Before you embark on establishing or expanding any referral relationships that you may already have in place, you first need to define your own objectives: what is your 12-month goal for revenue from new clients? What proportion of this do you want to come from referral relationships? What about the conversion rate of new clients? You should have an agreed target in place so you can easily measure success. 

You should also take a step back and take an objective look at your business and any existing relationships you may have. You need to ask yourself whether you are really ready to start building or expanding these relationships. Are there any issues within your business that you need to address first? If there are, you need to focus on fixing these before venturing any further into the referral partner process so that you are confident you can add value through your new relationship.

Only once you are comfortable that your business is in good shape should you start thinking about exploring potential partnership opportunities.

Building a successful referral relationship

Whether you already have five or six referral partners onboard or you are looking to start from scratch and build new relationships, making sure you have the ‘right fit’ is crucial.

Having a genuine personal connection is vital; if this is missing, it is unlikely the referral partner will feel comfortable sending their clients your way. 

If the personal ‘fit’ is right, your next priority should be confirming that you have the right product mix and market fit. Your offering needs to be suitable for their client base and vice versa. Do your ideal client profiles match? Is your offering the ‘missing piece’ in their client offering? The answers to these questions should be ‘yes’. Your ideal clients should be complementary, so that you both have something to gain from the referral relationship. 

The best arrangements are often those where there is a real gap in a business’ value chain - a gap that you can fill. By being able to offer a service that your referral partner does not and cannot offer by themselves, your partnership can be a winning combination.

If you and your referral partner do not have similar values and/or market positioning, sometimes it can be best to walk away, as without sharing common goals, like any relationship, it is not worth pursuing.

Ready to engage?

You may be confident that the ‘mix’ and ‘fit’ are right, but you need to be objective about where the real opportunities lie. Are your prospective partners ready to engage? Rank your potential partners to prioritise them – they need to be both a good match with your business and be ready to build a relationship.

If they are a good match, but not ready, you may need to put in the time and effort to help them become ready. However, if they are ready to engage, but not a good match, you should seriously consider whether they are likely to change their focus in the near future or whether it is easier to exit gracefully before you invest any further time or energy. 

Communicate, communicate, communicate

As everyone knows, to have a good relationship you need to communicate. Make sure your client value proposition, offering and pricing approach are clearly articulated and can be easily communicated.

In the same way that you need to understand how engaging a referral partner can benefit your business, it is important for your potential referral partner to really understand your offering before they engage with you too. 

Any relevant collateral and web pages should be updated with current information about your offering as this is where prospective partners are going to look first to find out more about you and your business.

Get ready to roll

Once you have established that you are ready to engage with your referral partner, having an effective rollout plan in place is essential. When it comes to service delivery you need to have your processes and hygiene factors working well, because while it takes a long time to build trust, it can take just a moment to break it.

Walk the potential referral partner through your processes and address any challenges or potential weaknesses quickly and honestly.

Addressing the issue of client ownership and control should also be done sooner rather than later to make sure you and the potential referral partner are in agreement.

By agreeing on expectations, client milestones and key performance indicators to measure success, you will both have a clear path to move forward. Delivering a first-rate service to your existing clients and any referred clients will create a positive feedback loop, which will further strengthen both client and referral relationships.

With all of these elements in place, referral partnerships can help to provide a valuable solution to expand your service offering by using the expertise of others to deliver a broader range of expert financial advice to your clients.

Fiona Mackenzie is senior practice consultant at Macquarie Practice Consulting.