Take a moment to consider where you get most of your new clients. What about new affluent clients? If you’re like most professionals, the answer is probably referrals. Taking this one step further, it’s most likely—if your business development efforts match those of most professionals—you’re getting a large majority of regerrals from satisfied clients.
Now, consider where your best new clients tend to come from. “Best” here is defined as most profitable. Based on extensive research with all manner of professionals, the answer is probably other professionals. While highly profitable new clients can come from anywhere, there’s little doubt that centers of influence are a predominant source of high-caliber, wealthy clients.
Put another way, centers of influence, unquestionably, are the most important source of high-net-worth, financially rewarding new clients. This is especially evident when considering the incomes of the financial advisors.
Based on data taken from the practices of 611 financial advisors, there’s a substantial disparity in revenue between investment clients that come from other clients and those that are sourced from centers of influence:
This differential between centers of influence and client referrals amounts to, respectively, about 21 to 1.
The research indicates that for every $100,000 in revenue a client referral is worth to a financial advisor, a similar referral from a center of influence would be worth slightly more than $2 million. A number of assumptions were made to calculate the revenue differential:
• The compounding growth rate of the investment portfolio is 6 percent net of all fees.
• The client provides no new assets under management.
• The length of the investment management relationship is eight years.
• No additional financial services are provided to the client.
• The asset allocation and the fees charged the “average client” by each financial advisor remains constant.
This revenue differential is certainly not set in stone. By changing the assumptions, the revenue differential would change. The takeaway from this calculation is that there is a tremendous difference in revenues from the clients a financial advisor sources through client referrals and those that are provided by centers of influence.
While the research examined financial advisors, there’s extensive support for the same kind of revenue differential for other types of professionals, such as life insurance producers, attorneys and accountants. Much of the variance is explained by the wealth levels of the clients of centers of influence compared to the wealth levels of the peers of existing clients.
If you want to source and work with wealthier clients, you probably need to systematically source them from centers of influence.
