Referral Madness

As pandemic ends, excitement about re-engaging with client referral sources soars 

After one of the crucial turning points of World War II for the Allies, British Prime Minister Winston Churchill famously stated, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

It’s a sentiment that could easily apply to how independent wealth management firms, their affiliated financial advisors and the referral and collaboration professionals they work with are approaching the resumption of some degree of pre-pandemic normality with the apparent containment – if not the definitive conclusion – of the COVID-19 pandemic.

As the old normal looks set to become the new normal once again, financial advisors are increasingly revisiting their networks of professionals in adjacent verticals.

The mission, as always, is to engage with parties who can be client referral sources, or collaborative strategic partners in fulfilling the needs of existing clients – or both.

WSJ SURVEY ON FINANCIAL ADVISOR REFERRAL SOURCES

In a recent Wealth Solutions Report survey of registered readers concluded at the top of this month, 78% of financial advisors have noted that they are placing a higher priority on the development of new client referral sources and strategic collaboration partners compared to this time last year.

84% of financial advisors in this same survey also stated they will increase their efforts to engage with existing client referral sources and strategic collaboration partners compared to efforts in the year-ago period.

Additional survey highlights include:

• 48% view tax advisors as both a top client referral source as well as a top collaboration partner
• 36% of survey respondents see increased opportunities to ride the surge of activity in the real estate markets by engaging more with mortgage brokers, mortgage lenders and realtors
• 28% of survey respondents are more interested in developing relationships with independent insurance agents and other insurance experts, especially in the areas of retirement income protection and life insurance
• 14% of survey respondents experienced a decrease in referrals from estate planning attorneys relative to the year-ago period

SURGING RELEVANCE OF HOLISTIC PLANNING

According to Libet Anderson, President of ProEquities, there has been a surge of interest over the past 16 months among financial advisors and clients in holistic financial planning, already a hot topic in the industry.

The head of the Birmingham-based independent wealth management firm encompassing a broker-dealer, RIA and insurance agency said, “Whether this is pandemic-related or not is hard to say conclusively.  But there’s greater urgency for financial professionals to provide advice that addresses all aspects of a client’s life…and this includes comprehensive insurance solutions.”

Anderson notes that ProEquities has seen increased interest among its financial advisors in comprehensive planning for clients that brings together solutions from both the firm’s wealth management and insurance platforms, including introductions to independent insurance specialists.

A TAXING TIME

Of course, referral and collaboration relationships with insurance professionals are just the tip of the iceberg.

With the recent Biden tax increase proposals, financial advisors who specialize in serving the high net worth and ultra-high net worth investor segments are more focused than ever on identifying and partnering with the right tax advisory businesses – While avoiding the multiple potential problems that can arise when wealth management businesses try to be all things to all people by building their own in-house tax advisory or CPA practice.  

According to Harry Grand, Senior Managing Director of Angeles Wealth Management, an independent RIA firm and multifamily office, “The bifurcation of accounting services from investment services is paramount, not only from a conflict perspective but also from a reputational standpoint.”

Instead, Grand said, “It is imperative that ultra-high net worth focused RIA firms have a rolodex of diverse, accomplished, and trustworthy CPAs.”

When vetting CPA firms, Grand emphasizes the following criteria:

1. Who remains consistently on the team?  Ideally the same CPA would support the client year-after-year, so as the relationship evolves, the CPA remains aware of the dynamics.
   
2. How timely is communication, and how available is the CPA for his or her clients – quarterly, regularly throughout the year?  An accomplished CPA should respond quickly and proactively to clients.  This communication should continue throughout the year, discussing quarterly estimates, changes in tax-code and general updates on evolution of entities, trusts and complexity within households.
   
3. How strategic a fit with the client’s needs is the CPA?  Ideally, the CPA can help the client save or even make money.  Be sure to ask for examples and case studies of solutions and problems solved for clients by the CPA.
   
4. How does the CPA bill for services?   CPAs may bill by the hour, overall return or some combination. After reviewing previous returns and interviewing the client, a tax professional should be able to provide a good-faith estimate of costs.“Where was my
   good faith
   cost estimate?!”

SYSTEMATIZING THE ENGAGEMENT PROCESS

With the recent explosion of activity among financial advisors seeking to expand their ecosystems of referral and collaboration partners, many wealth management firms are spotlighting their strengths in supporting their advisors in this regard.

At Hightower Advisors, the RIA aggregator that has been emphasizing organic growth for its affiliated RIAs as an important area of growth, there is a clear effort to help advisors forge productive relationships with client referral sources or “Centers of Influence” (COIs), using the firm’s preferred nomenclature.

Hightower’s approach is unique in that the firm is operationalizing the processes and resources available to affiliated RIAs seeking more referral source relationships.

“We think there are two key elements to a strong COI strategy:  Systematizing the process and providing value-add resources,” said Scott Holsopple, Chief Growth Officer of Hightower.

“In terms of systematizing, a process of steady outreach, check-ins – including in person, phone and email – and measurement is key. It is unrealistic to expect successful results from a list of 100 COIs, so we recommend selected, tight relationships with a finite number of good partners.”

Holsopple adds that Hightower also offers resources to its affiliates on a very wide range of topics that they can share with client referral sources to spark new conversations while driving further engagement.  These resources cover everything from financial implications of the new tax guidelines to “lifestyle” content such as college planning and raising resilient children. 

According to Holsopple, when financial advisors share relevant and robust content with referral sources “with no quid-pro-quo” involved, opportunities for genuine collaboration multiply, benefitting all parties involved.

“We’ve taken some of those best ideas and built out programs that can be replicated within different verticals.  We’ve also built sophisticated content including papers, webinars and infographics that can be easily shared with those COIs.  Advisors should look for this type of support:  Content that reinforces their key message, the ideas on where to share that information, and the guidance on how to track success. “

James Miller, Contributing Editor & Research Analyst, Wealth Solutions Report, contributed to the development of this article.  He can be reached at ContributingEd@wealthsolutionsreport.com