How to evaluate referrals

Referrals are a good way to build business. And if it’s a family member of a current client, most advisors are willing to take on that person since he’s considered an extension of the same relationship.

But what happens if you’re referred to an acquaintance who is below your asset minimum, and doesn’t meet any other metrics you use to evaluate prospects? Members of our Editorial Advisory Board share their insights.

David Wm. Brown, CLU, ChFC, CHS, TEP, Al G. Brown and Associates, Toronto

Read: 3 approaches to prospecting

If you’ve got the time, you may want to give the referral a chance. In fact, one of my largest clients started out as one of my smallest. The client was a junior accountant who had a $50,000, 10-year term policy. I used my gut feeling, seeing the client was a bright individual who understood the necessity of insurance to protect his family and create liquidity, as well as the value of an advisor. Today, that client is a multi-millionaire.

Rhonda Sherwood, CFP, FMA, ScotiaMcLeod, Vancouver

Trying to assess certain metrics, like if your personalities click or if a client will heed your advice, is difficult. I can tell if the relationship is going to work depending on how much information a client shares. If they seems apprehensive about opening up to what’s happening in their life, or what their current financial situation looks like, I can’t help them. I am not an order taker. I need to know what their financial picture looks like and what we are investing for. I also tell prospects that I need them to be equally committed to the process to build their financial wealth. In other words, commit to recommended actions, make time for regular meetings and update me on important life changes.

Darren Coleman, PFP, CFP, CIM, FMA, FCSI, Raymond James, Toronto

Read: How to gain veterinarian clients

If it’s not a family member, we have a rule: we only work with nice people. Is there chemistry? Can we trust each other? Can we make a positive change? For instance, we met a hockey player who was at the end of his career. His lifestyle costs were in excess of savings. He didn’t want to change or adjust. I can’t fix that problem, so I turned him down.

Another example is from back in the late ’90s. I met a lottery winner who had the opportunity to create an investment portfolio that would create a wonderful lifestyle for rest of her life. But, during the tech bubble, she started to make crazy, high-risk investments against my recommendations. Her risk profile was off the charts, and she thought, even if she lost some money, she’d still have more than when she started. I disengaged with her as well.

Cynthia J. Kett, CPA, CA, CGA, RFP, CFP, TEP, Fellow of FPSC, Stewart & Kett, Toronto

Read: How to keep second-generation clients

We’re an advice-only financial planning firm. I’m looking for whether clients have complexity in their financial situation. It might be a life event—getting married, having children, separation, death or lottery winnings. It has to be a situation where we can add value; otherwise, I wouldn’t feel comfortable charging for our advice. My current rate is $350/hour + HST; my associates bill at $175 + HST. We post our rates on our website. By the time potential clients call us, they have a good idea of what we might charge. If they feel it’s worth their while to pay the fee, then they’re likely a good fit. They may not have a lot of income or assets right now, but they have the right mindset.

Bev Moir, FCSI, CLU, ScotiaMcLeod, Toronto

ScotiaMcLeod implemented a policy that penalizes us for having accounts that are less than $100,000. It isn’t black and white, but they discourage us from having such accounts because we’re experienced wealth advisors. For clients below that minimum, the product offerings at banks may be more appropriately suited to their needs. If I need to turn down a client, I tell them ScotiaMcLeod doesn’t allow me to take smaller accounts. But, when they’re a bit further along, they can contact me again.

Terry F. Ritchie, EA, RFP, TEP, director of Cross-Border Wealth Services at Cardinal Point Wealth, Calgary

Read: How to ask for a referral

If the prospect isn’t a referral from a top client, we use a scorecard to determine if we want to take him or not. In order, we look at assets; relationship (if they seem easy to work with); draw on firm resources; conversion probability; potential for new assets; age; and if they have cross-border issues (our specialty). But we use the scorecard as a backup, or to gain greater insights as to whether the clients would be A, B or C clients.

Beth Hamilton-Keen, CFA, Mawer Investment Management, Calgary

If we have clients clustered just below our minimum, it takes away from our ability to serve others we’re already committed to. So, we’ll provide alternatives. For instance, if it’s someone nearing retirement with an $800,000 portfolio, they still need advice but they don’t need the wealth counseling we provide; or, they may not be able to afford it. So we’ll refer the client to our mutual fund group, which provides advice and portfolio construction without the additional goals-based tracking and reporting.

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