“The business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.” – Peter Drucker

Ask a planner what marketing means to them, and the most likely response you will get is: Referrals. Time and time again, referrals come up as the #1 marketing method that planners use to seek out new customers.

However, when I look across the industry, I have a concern that this emphasis on referrals as the favoured marketing strategy of financial planners is going to bite the industry in the behind in a big way in years to come.

Now, before I go any further, I should clarify – I am not against referrals as a method of marketing. It is a perfectly legitimate method, and history has shown that it clearly works. But, let’s take an objective look at referrals for a moment.

Referrals are indeed a powerful method for the following reasons:

• It costs very little to do, compared to other methods;
• Referrals produce very high conversion rates when they occur (approx. 90%)

Objectively speaking though, there are some downsides to referrals also:

• You have very little control over when it will occur – it could be tomorrow, it could be two years from now;
• You cannot directly control the type and quality of clients that are referred to you – but because an existing client referred them, you have an implicit obligation to what could be a non-ideal client;
• It is difficult to control the message and the (potentially unrealistic) expectations the referrer might have set;
• And of course, if you are a new business, you still need a client base first before you can leverage off referrals.

More significantly, while the assumption behind referrals is that 10 clients become 20, and 20 become 40, it hardly ever works that way. You might have one client refer a few of their friends, but at that point, the social circle closes upon itself and further referrals cease. Therefore, in reality, referrals are often quite limited in the scale and coverage they can provide.

Strategically-speaking, the issue we are facing here is that, the future of the industry is shaping up to be one of increasing competition amongst planning groups for a population that now, more than ever, has easy access to financial resources and education far beyond what was available even just a decade ago.

Not to mention that the generations post the Baby Boomers (who are the next group of accumulators) are, on the whole, far more independent and less trusting of so-called figures of authority than their parents. Meaning the road to convince them of the need for financial planning is also a much longer one.

Put in context, this means that practices will soon have little choice but to start taking a much broader look at their marketing to include not just referrals, but also more ‘active’ methods such as direct marketing, seminars, internet marketing, etc., in order to reach prospective customers. (This isn’t to say that practices don’t already do this today. It just isn’t a very prevalent thing compared to the preference that referrals take in the planner arsenal.)

Which takes us back to the quote at the start of this article. The reality for practices is that, in order to be competitive, succeed and grow, they will need to step-up and start thinking of themselves not as a financial planner that just happens to have an ABN, but as a real business that needs to proactively market itself to survive.

And this means marketing the business using more ways than just referrals, and having a system that can allow you to monitor, control, and improve the results. This requires a marketing plan, but more importantly, it requires getting your hands dirty and finding out what actually works with your customers and what doesn’t. Speaking from personal experience, there really is no substitute for getting hands-on to jumpstart your marketing skills.

So how big is your marketing arsenal? How else could you be reaching out to your existing and prospective customers today?

Lap-Tin