Business Guides

A Referral Opportunity Advisors Rarely Recognize

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives

I don’t know how I missed this referral opportunity for so long.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

financial advisors
Meditations / Pixabay

An undiscovered center-of-influence

A lot of very informative articles have been written about the importance of fostering relationships with centers-of-influence (COIs). No one could dispute the premise: having a steady stream of referrals from pre-existing relationships is critical to the success of your business.

Most advisors consider attorneys and CPAs as primary COIs, and with good reason. The more affluent the client, the more likely they are to rely on attorneys and accountants as a source of referrals. According to Theresa Riccobuono, 68.9% of affluent clients find their primary financial advisor in this way. The percentage increases to 89% for those with $10 million or more in assets.

It’s not surprising that advisors spend so much time, effort and money pursuing relationships with these professionals.

Here’s another COI that has been largely overlooked: investment bankers handling transactions in the middle market (often defined as companies with revenues between $5 million and $250 million).

Think about it. These bankers are the focal point for transactions that inevitably lead to a significant, once-in-a-lifetime, liquidity event. Who will end up managing those assets?

A surprising fact

Here’s what I found surprising when I delved deeper into these transactions. Frequently, the seller of these businesses has little liquid cash and no advisor relationship prior to the sale. They have invested primarily in their business. The purpose of the sale is to diversify their risk.

In these circumstances, the investment banker is often the source of the referral. The client is receptive to it because the banker has earned his or her trust.

Who gets the referral?

Several factors influence who will receive a referral from an investment banker. The primary one is based on the principle of reciprocity. This principle is defined as “the human need and tendency to want to give something back when something is received.”

If the seller was referred to the investment banker by an advisor, you can be assured the banker will make every effort to return the favor by directing the seller back to the advisor to manage the assets from the sale.

What if there was no initial referral to the investment banker? Then the banker has full discretion to refer to any advisor.

How to obtain these referrals

To cultivate these referrals, start by recognizing investment bankers as a COI equal in importance to attorneys and CPAs. Identify investment bankers to the middle market and reach out to them.

When you do so, use the principle of reciprocity to your advantage. Instead of explaining who you are and why you might be the right resource for their clients, do something different. Ask if you can interview them to get a better understanding of their business and the clients they serve (and are looking to serve).

Explain you may be in a position to refer business to an investment banker suitable for your clients. Make the meeting about understanding what kind of transactions are squarely within the wheelhouse of the investment banker.

Read the full article here by Dan Solin, Advisor Perspectives

Get our newsletter and our in-depth investor case studies all for free!