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Length Of Relationships, Performance And Perceived Stability Of Firm Key Drivers Of Financial Advisor Client Referrals

Stocks in this article: PRU

Most financial advisors significantly underestimate the amount of time it takes for clients to be comfortable providing referrals, a key source of new business for financial professionals, according to a new Prudential white paper.

The report, “Referrals: A Matter of Trust,” reveals that clients take on average 4.8 years to be comfortable recommending their financial advisor, more than twice as long as the 2.1 years on average advisors thought. The paper underscores the relevance of client referrals, with 56 percent of clients having provided referrals and an additional 36 percent saying they would consider doing this.

“While the length of the relationship with an advisor is a key consideration for clients making referrals, there are many other factors that are likely to influence clients’ decisions,” said Rodney Allain, senior vice president and National Sales Director for Prudential Annuities. “By surveying both clients and advisors, this white paper provides valuable perspective on the drivers of client referrals.”

Clients who were more likely to refer their advisors rated their advisor “excellent” or “very good” at setting realistic expectations about investment returns (86 percent), delivering on what was promised (86 percent), and achieving strong investment performance (79 percent). Notably, 80 percent of these clients rated their advisor highly on disclosing their fee levels.

The study was based on data collected in 2011 from 800 clients and nearly 400 advisors.

The paper notes that clients value a broad set of services beyond simply generating investment returns. For example, 64 percent of clients who were likely to refer their advisor had been provided with a written financial plan, compared to only 46 percent of clients who were less likely to provide referrals. Similarly, receiving advice about generating steady retirement income and preserving and protecting savings tracked with a higher likelihood of providing referrals.

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