The negative impact volatile market conditions have had on investment portfolios in the past 12 months may have prompted a financial planner's existing clients to be a little hesitant to refer their family, friends and colleagues as potential new clients.
While existing client referrals may not be as abundant in a bear market, there are still myriad other referral sources, irrespective of the market climate, that an adviser can leverage to generate new client leads.
Furthermore, if an adviser wishes to achieve a self-generating referral model for the longevity of their business, it is important they not only seize all referral opportunities on offer, but also nurture these relationships on an ongoing basis.
Successful financial advice practices all share three common elements, according to Association of Financial Advisers chief executive Richard Klipin.
"They've got a really strong value proposition that attracts clients, they have a very strong referral base so existing clients refer new clients, and they have a strong range of centres-of-influence relationships that refer them new work all the time," Klipin observes.
"Once you've got those three things in place and you continue to do them well then obviously it becomes a self-generating model."
The opportunity for financial planners to gain cross referrals with centres of influence, such as accountants, solicitors and other professionals, is one method to secure new clients.
"The important thing is to have a formal and systemised approach so that the transfer of clients, the transfer of information and the professional nature of the relationship are always front and centre," Klipin says.
"What we've found is when that happens, significant business flow and opportunities come about."
FPA chair Julie Berry says financial planning practices that spend the time building the relationships with their centres of influence will see a lot more new clients coming through the door, providing they are dealing with these professionals appropriately.
"There are a lot of planners out there that have got a centre of influence through their licensee that just take it for granted," Berry says.
"I think those are the ones that are going to come undone because people are looking for service, they are looking for value for money and if you don't give it to them, then they're not going to believe you're going to give it to their client."
Lonsdale Financial Group chief executive Mario Modica says the dealer group supports its network to generate referrals, however, he also observes advisers sometimes do not take full advantage of the opportunity available to them.
"We'll help them generate referrals, but we're not going to actually hand across a list of clients because we don't operate as a financial planning firm; we're a dealer group, we allow our network to do the financial planning," Modica says.
"But having said that, we do have a number of centres of influence where people don't take up the opportunity that they should."
He says an example of this is the client referral opportunity available for financial planners through the Australian Securities Exchange's recent launch of the Find a Planner portal on its website.
Lonsdale is one of the dealer groups that is in the process of nominating advisers from its network to participate in this referral opportunity.
"Now the take up of that sort of referral with our advisers has been very low. We are pushing it and we're promoting it and it has finally started to get some traction with our advisers, but interestingly they haven't seen that as something that interests them, and yet they want referrals," Modica says.
"So it's a little bit of a contradiction in some respects. They take it for granted in that they know it's there, but they don't take the next step to actually go and do something about it."
While centres of influence can provide a financial planner with various opportunities to generate new clients, Berry points out the adviser must also make a consistent effort to educate these professionals.
"It's about keeping up communication with them and educating them about what it is you do and getting them to be your client, because the client is a better person to tell another client to come to you," she says. "We work really closely with our referral sources and the key for us is ensuring that they understand what it is we do so that they are then comfortable talking to their clients and getting their clients to come and talk to us."
Fortitude Financial Management risk adviser Ryan Watson says he keeps up regular contact with his referral sources, which are general insurance brokers and accountants, and has even put together a 12-month client service plan for them.
"We've been having monthly contact with them, running education seminars, buying lunch and just teaching them how to refer to us," Watson says.
"We need to help accountants identify leads for us, so things like with tax returns - is there a tax deduction for income protection, if there is, how long since it's been reviewed, if there's not, why don't they have it? It's just simple things like that for accountants and then just running education seminars for general insurance brokers.
"In the past I think we've been a bit worried about setting the agenda with these types of people, but all we really want to know about is how they can refer to us."
While Lonsdale is primarily situated within an accounting firm, Modica says accountants identifying referral opportunities for its network of financial planners and risk specialists doesn't occur as regularly as he would like.
"So we're showing our network how to foster those relationships to generate referrals from them, but also generate referrals from existing clients and generate referrals from other centres of influence," he says.
As a result, Lonsdale has recently rolled out to its advisers a consulting module called "Building a referral network", which is scoped around internal and external referral sources.
The module goes back to basics and works through innovative solutions and processes that advisers can leverage to secure new clients. These include identifying referral partners, mapping a network of referral sources, designing strategies to strengthen referral relationships and, most importantly, how to ask for referrals without asking.
"The program identifies what trigger points there are to identify when a client has a need and that they should be referred across, and I think that's the key part," Modica says.
"People genuinely want to help people, but what they find difficult is identifying what the need is and sometimes being a little cautious about referring because they think they might be wasting the adviser's time.
"So the module is very comprehensive and does give the group a lot of tools to work with to allow them to refer, because to ask for a referral is generally a hard thing for most people."
Similarly, Berry observes most advisers do not know how to ask existing clients for referrals.
"Traditionally planners aren't good at asking for referrals; it makes some of them a little bit uncomfortable," she says.
"Really good planners are quite happy to do that, but there are others that don't like to do that and don't perhaps realise that that's their best referral source, because that's the type of person they want to deal with and their friends are going to be the type of people they want to deal with as well."
AMP director of financial planning, advice and services Steve Helmich shares this view, noting an adviser's lifeblood will be the quality of their clients.
"That's what they've got to look for from day one and work out the sort of client they want to deal with," Helmich says.
"That's what's really important about being a self-employed planner is that you can also determine who your clients are and who you want to deal with.
"That's also why many of our planners have got such great relationships with their clients, and it goes beyond the professional relationship at times almost to become friendships.
"So when you sit down with somebody for the first time, you have to really listen and understand what their situation is, get to know what makes them tick because that's what develops the rapport."
He also suggests an adviser should never underestimate the power of word of mouth by an existing client. "People will naturally refer without asking. You see the trick is if you do a great job for somebody, they'll tell people and word of mouth just spreads so quickly," he says.
"I remember a planner of mine saying he had some clients that he really looked after and they went to a barbeque one weekend and they were talking about him and on the Monday he got three calls from people at the barbeque.
"One of the things people really want to know is who can I go to, and the word of a friend or someone you know and trust is pretty strong in that regard.
"I also had a planner who worked for me years ago and he had a referral tree diagram he would show to clients and say, 'I've been able to talk to you today because all these people have referred me from this one person'.
"What that does is it shows this vote of confidence when others are shown that you're so good at what you do that they'll refer other people to you."
Helmich adds there are also other referral opportunities such as links to corporate superannuation schemes that an adviser can take advantage of to secure new client leads.
"When people come to a company where the superannuation scheme is run by the planner, the planner will go and offer personal financial planning to them as well on top of their corporate scheme," he says.
"So people joining the company, people leaving the company and people retiring - they're all referral opportunities for planners as well."
As an industry veteran, he says there is a big difference in generating client leads now compared to early on in his career.
"If I go back to the early days of the AMP adviser in the late '70s, early '80s, that was a time where it was just based around numbers and you had to contact people, see if you could open a need with them and quite often you'd start with that and it was pretty tough," he says.
"But I must say a lot of the planners today have built their good client bases from those early starts and they met people in those days who have grown with them and have been lifelong clients because of that."
For a young adviser starting out in the industry today, Helmich suggests the first thing they should do is work out what their natural market is and leverage off past business contacts who may need some financial planning advice.
"You've got to make sure you have a look at the opportunities from a past working life because we know people are better off getting financial planning from someone they know and trust," he says.
"I'd also look at what clients AMP could give them and turn them into their clients in their natural market who don't have a planner at the moment, and then from those two areas I'd look to develop referrals.
"We quite often talk about making sure that as you go through a fact find that you keep showing your client that you're listening because they are the sorts of things that clients zero in on - they want to know that you're listening and you're acting in their interests."
With 20 years' experience as a financial planner, Berry insists the best way to get leads has always been through personal referrals through existing clients or from other external business colleagues.
"So trusted referrals from a person you really believe in always have and I think always will be the best way to get new business. I think that's how some of the really good businesses get the majority of their referrals," she says.
"Mainly because those people are already partly comfortable with coming to see you before they actually come and see you, particularly with people being a bit more nervous from the market experience."
For Watson, a 28-year-old adviser who started out in the industry five years ago, it's back to the old school ways of generating new client leads.
"I've been going back to what's worked for advisers in the '70s and '80s and it's all been about client service and client referral," he says. He says this tactic was prompted by speaking to an older risk adviser who had worked for AMP from 1979 to 1992.
"His record year was 312 policies written in one year and he's told me the way he'd done it was through asking people for referrals and it was all about customer service," he says.
"So that's what got me thinking along those lines and we've put that into place over the last 12 months and it seems to be working for us."
To achieve this, he says he undertook some database mining to identify A and B clients based on income generation.
"We focused on providing them with much more service - because of the potential clients that could come out of their colleagues, friends or family - and from that we've found that we've got more leads," he says.
"I've found the one-on-one approach with existing clients, so whether it be actively going out and reviewing clients or even just catching up with them for a coffee, from that we've had multiple referrals already this month, and we've had numerous referrals over this year, which is something we haven't had in the past.
"For example, a month ago I had a long Friday lunch with a client, then earlier this week he referred me to a friend of his who works in the same street.
"So instead of trying to secure what we call association businesses, we've focused more on what we have at the moment and from that we've been receiving a lot more referrals."
Watson says his practice is aiming to secure 100 to 150 new clients this financial year.
"From that it would be 50/50 in terms of referrals from existing clients and referrals from new referrals," he says.
"So we know that we've got a pretty healthy business if we're implementing policies based on referrals from existing clients at those levels.
"All an adviser needs to do to be honest is to get off their butt and go out and see people - whether it be a person who runs a coffee shop - you just need to engage people and you never know where it can lead."
He adds it is also about positioning oneself correctly with existing clients and potential referral sources.
"Whenever anyone asks me how my business is going I just say we could always do with more new business," he says.
"I think a trap advisers fall into is they say business is great - well if business is great people tend to think you're working to your capacity and they might not want to refer you to people."
Helmich says an adviser must not only be very socially mobile but also quite observant.
"Like let's say in your local area when you see a sign go up that says under new management, what a great time to go and introduce yourself - say welcome to the area, I'm a financial planner in the area," he says.
"It's the local area marketing done in another way in a face-to-face-style fashion. Just go and introduce yourself to these people and let them know who you are. You keep doing that as many times as you can and eventually someone will say, 'gee, I need to talk to you'."
To help financial planners generate new business without advertising, Berry says the FPA has put together various workshops for its members, one being the Referrable Planner, which aims to give them tips on how to achieve this.
While an adviser's referral strategy does also depend on their wider geographical circumstance, with different opportunities available within an urban district versus a regional province, Helmich says marketing oneself strongly in the local area is very important. "If you go to one of our country areas and you walk down the street with a regional planner, they know everyone - they say hello to everyone they pass on the street and that's the secret; if a financial planner is part of their local community, the local community will support them," he says.
There are also opportunities within an adviser's own community to work with or sponsor sporting groups to generate opportunities for financial planning and insurance referrals, according to Modica.
"We've got a good example in our network that deals with an AFL (Australian Football League) team and they've been doing that for years and years and they get referrals out of that all the time, from players, supporters, so that's a very powerful one," he says.
"It's not as expensive as some people think it is; it could be less than $10,000.
He adds this type of referral method would become a more important avenue in the future for advisers to consider.
"At some stage you get to saturation within your own accounting firm. Whether you'll actually ever saturate it completely I don't know because hopefully the accounting firm is bringing new clients in all the time as well," he says.
"But you get to a point where there's only a certain number of clients that you can do work for.
"So just because an accounting firm might have 5000 clients, it doesn't mean there are 5000 referrals there by any means. So I think you need to look outside of your own business and start looking at where else you can generate opportunities. It's all about diversification."
Advice Centre Consulting managing director David Fox agrees that advice businesses must cast their referral nets further afield if they want to widen their potential client pool.
While Fox says generating referrals from existing clients is a valuable activity for advisers, he argues the number of new clients most firms are able to generate by this method is relatively small compared to the potential of going out into the broader target market centres.
"A lot of advisers have the view that most of their new clients will always come from current client referrals. My conclusion is that is the case because advice businesses do not have a high capability to source clients in other ways," he says.
"It depends on the size of the firm, but your typical business out there would generate perhaps 10 to 15 referrals per year from current clients. Now that's not a lot.
"The good advice firms are looking for over 100 new clients this coming year and they know they won't be able to get 100 new clients from referrals from their current clients."
These advice practices would expect to generate 15 per cent of new clients through existing client referrals, while the remaining 85 per cent would be generated through activity with influencers of their target markets and direct functions such as luncheon presentations with their advice partners and other professionals they are working with, he says.
"An advice firm that I'm aware of that is attracting good numbers of new clients at the moment actually participates in two functions per week that are specifically for their clearly identified target market," he says.
These events could include the firm holding luncheons, breakfasts, presentations and seminars, or participating in trade shows or conferences.
"For example, this small advice business held a luncheon where they invited a lot of their advice partners - other professionals that they work collaboratively with - and asked these advice partners to also bring along their small business owner clients," Fox says.
"I also presented at that function on growth strategies for small business, so a fairly general topic but of real interest to small business owners. They had about 70 small business owners at that lunch of which 67 were potential clients.
"So that activity of having other professionals invite their clients to a function was a good example of an advice firm working collaboratively, and not just trying to take the clients from one professional to another, but working in harmony to deliver advice to those clients."
The better advice businesses have understood the need to reposition themselves to provide more components of advice, such as non-traditional advice to small business owners, in order to access markets they have not been able to access previously, he says.
