Julie Littlechild

Anatomy of the Referral

The economics of client loyalty revealed.

February 28, 2011
by Julie Littlechild

Referrals are and always have been something of a mystery. On the one hand, most professional advisors say that referrals are their one best source of new business. On the other hand, only a small percentage of clients actually provide referrals. And while a majority of clients are satisfied with the relationship, very few take the next step and share that information with friends and family.

To crack the referral code Advisor Impact went to the one true source of insight on the topic: the client. In the spring of 2010, we gathered data from more than 1,000 clients to help us solve this mystery. In our research, we discovered:

  • Three out of four (77%) of clients gave their advisor an average satisfaction rating of eight out of 10 or higher.
  • Nine out of 10 (93%) of clients are somewhat or extremely likely to continue working with their advisor.
  • Four out of five (83%) of clients are comfortable providing a referral.
  • But only a quarter (29%) of clients provided a referral.

To get closer to solving the mystery, we identified those ideal clients who are satisfied, loyal and also provide referrals. They are the ‘Engaged’ clients. The table below makes a clear case — we need to set client engagement as the standard because satisfaction and loyalty simply aren’t enough. More importantly, we need to understand what drives client engagement and how that is linked to client referrals.

Cluster Percentage of all respondents Percentage providing a satisfaction rating of eight out of 10 or higher Percentage providing a loyalty rating of of four or five out of five Percentage who had provided a referral in last 12 months
Disgruntled 12% 24% 59% 13%
Complacent 39% 82% 97% 0%
Content 25% 83% 99% 14%
Engaged 24% 90% 99% 100%


Anatomy of the Referral

To get to tactics, we believe that we need to examine referrals through the lens of a model we call the Anatomy of the Referral. The model recognizes the complexity of the referral, breaks it down into its component parts and examines each in turn. It is a model that accepts the disconnect between the ‘motivation to refer’ and ‘action’ and examines how to bridge that gap.

The ‘who’, in this model, is the engaged client. While the full report on this study provides considerably more detail, we can summarize those differences by saying that client engagement is, at the highest level, characterized by three things:

  • Working with the right clients (targeting only clients for whom you can do your best work).
  • Having the right conversations (providing a high level of contact that is specifically designed to lead clients toward a better financial future).
  • Asking the right questions (gathering input from clients on an on-going basis)

That said, simply delivering an outstanding client experience — even one that is characteristic of the engaged client — does not mean that clients will automatically and independently advocate on your behalf. Despite the fact that 83 percent of clients say they are somewhat or very comfortable providing a referral, only 29 percent actually provided a referral. We describe this challenge as a “referral gap.” Despite the fact that 58% of engaged clients say they are fundamentally motivated to refer in order to say ‘thank you’ to their advisor, few take action unless there is a clearly stated need on the part of a friend or family member. We call this a motivation gap.

Professional advisors are often taught to ask for referrals and to ask frequently. The data suggest that a better approach is to help clients to spot a good referral opportunity so that they recognize the opportunity to share your name. That opportunity is not likely to be as obvious as a client being asked for the name of a good advisor. Rather, the opportunity might involve a client speaking with a friend who is selling a business. The need triggers the opportunity for a referral; your clients need to recognize that need.

The Implications?

Craft stories that help explain how you can help the friends of your existing clients with vivid pictures of how you solved very specific problems and the impact it had on clients' lives or businesses.

Your Action Plan

  1. Gather client feedback to identify disgruntled, complacent, content and engaged clients.
  2. Refine service delivery to ensure that you are delivering on key drivers of engagement, with a focus on moving content to engaged.
  3. Craft clear stories that focus on the problems you can solve.
  4. Map out process to share stories with your engaged clients.
  5. Expand the reach of your stories through additional communications, such as your website.


Referrals are one of the few growth strategies that can have a meaningful impact on our businesses. No one said it would be easy, but it is definitely worth the time.

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Julie Littlechild is the president of Advisor Impact, a firm focused on helping accountants gather and use client feedback to build more profitable relationships. Download the full Economics of Loyalty report.