The Role of Referrals in New Client Capture Within the Field of Independent Financial Advice
Grierson, Stuart William
The field of regulated financial services has been ill-served by marketing theory. As a consequence: (1) the nature of marketing in this sector has been misunderstood; (2) the key mechanism for generating new business in the field, namely, referrals, has been the subject of serious misapprehension; and, (3) the guidance offered to practitioners has been negligible. In particular, the role of the independent financial advisor (IFA) appears to have been conceptualised as a sales role, and the nature of the relationship between the IFA and the client has been addressed as though it were a straightforward buyer-seller relationship, with the IFA selling products to the client. It is unlikely that these conceptualisations were ever satisfactory and following recent regulatory changes in the sector they have become even less relevant. Since January 1st 2013 commission-based selling of financial investment products to consumers has been prohibited so that independent financial advice has become largely a fee-based service. The focus of this research is on referrals as a method of generating new business; the research context is the UK independent financial advice industry. The objectives of the study are to: (1) define and conceptualise referrals in the context of the financial advice industry; (2) develop a framework of the referral process; (3) provide practitioners with empirical evidence in connection with their embedded beliefs about referrals in this industry; (4) explore whether (as many practitioner believe) it is possible to actively manage referral generation within a financial advice business; and, (5) to investigate the importance of referrals as a means of generating new business for advisors. It was found that practitioners believe they influence referrals in four main ways: excellent service, higher qualifications, contact frequency and speed of response. However the results of this study clearly indicate that referrals are not the outcome of agency; they are a random occurrence, determined by happenstance and the result of an opportunist conversation between a prospect and a client. In turn, contrary to the advice of consultancy providers, asking for referrals was found to be ineffective and not welcomed by consumers. While word-of-mouth (WOM) often instigates referral generation, the value of WOM, needs be treated with caution, since consumers were found to have limited understanding of the service provided by independent advisors. Despite the importance consumers attribute to investment performance practitioners do not, commonly, provide investment benchmarks nor do consumers use analytical tools to assess the performance of their advisor. The absence of performance measures connects with the finding that practitioners have difficulty in describing what they do hence consumers are uncertain how to describe the service and what to say about it when asked.