Find new clients through referrals and strategic partnerships

New clients rarely just walk in off the street, plop down a wad of cash, and ask to have it invested. Adding new clients and their assets to your book requires effort and legwork. Wealth managers looking for long-term growth and sustainability may need to build a culture that generates referrals. Then those referrals ­— ­_­from other clients and centers of influence (COIs), external strategic partnerships, or internal strategic alliances ­­— may have a pathway to your door.

In 2023, wealth management practices gained eight clients on average, adding an average of $7.6 million in assets per financial professional. Referrals from clients, friends, or family members accounted for more than half of that. In our view, most firms don’t put enough time and effort into new client acquisition. According to Practice Innovation Index respondents, wealth managers spent only 7% of their time prospecting.² Generating new high-quality leads and a consistent client referral pipeline may broaden a wealth manager’s reach and establish trust and credibility. Business development may set you up for the future.

Generate client referrals

Referrals from existing clients, their friends, and their families have the potential to generate significant organic growth. We believe wealth managers need to be intentional in how they seek them out.

1. Target clients who are in similar situations in order to cultivate a pool of like-minded individuals.
2. Identify clients who seem receptive to giving referrals.
3. Consider the right time to ask clients for introductions to their personal or professional network.

Direct isn’t always best, of course. Another approach is to casually mention your firm’s focus (ex. doctors or lawyers) during client conversations.

When requesting a referral — directly or subtly — frame the conversation as an offer to help others navigate a similar situation. Avoid sales pitches. Clients and COIs who value your services may want to introduce prospects in their network because they value them as well. These are, in our experience, the most meaningful referrals. 

A robust referral network may be the most powerful tool for bringing in new clients, and access to a client’s network may help you build yours. To find success, it is our experience that your network must already be somewhat established, and you must be willing to mine it for referrals. According to PII respondents, 13.8% of clients and strategic partners (like CPAs, attorneys, estate planners, and insurance specialists) on average, provided a client referral in the last year.² We believe there’s potential for growth.

Wealth management practices that generated a higher percentage of client referrals were also among the fastest growing. Practices with referrals from more than 10% of their clients and strategic partners grew annually at a compound annual growth rate (CAGR) of 21.2% over the last five years. However, practices with referrals from less than 2% of their clients only grew at a 12% rate.² A focus on referrals may help drive the growth of assets under management (AUM). In our view, success breeds success, with referrals creating a cycle of growth and an environment that attracts talent. That success may also help existing clients and key centers of influence ­—referral sources — gain confidence.

Develop external strategic partnerships

We have seen that key strategic partners can be another important source of new client opportunities. By collaborating with other professionals — CPAs, attorneys, estate planners, insurance specialists, and other COIs — wealth managers have an opportunity to expand their network. Affluent clients, in our experience, typically work with multiple financial professionals, so offering a wider suite of services may enhance your value proposition. In terms of business development, these partnerships have the potential to lead to high-quality client referrals.

Successful practices often benefit from an established professional network that consistently refers clients. According to PII respondents, the typical practice has three strategic partners that provide referrals, often through a revenue contract or other contractual arrangement. Practices that exceed $1 billion in AUM average five external partners. Practices catering to the affluent — those with between $2 million and $5 million in assets — tend to be more proactive in developing and leveraging external strategic partnerships.²

External strategic partnerships have proved useful for sourcing new clients, but developing these partnerships, in our experience, requires careful planning and cultivation. Establishing reciprocal referral relationships with a vetted network of professionals can take years and may not lead to immediate results. With a little patience, we have seen that reliable COIs ultimately tend to refer quality prospects, which may lead to long-term growth in the firm. They let wealth managers coordinate a broad suite of services which improve client outcomes and retention. And happy clients may open doors to still more referral opportunities. 

Build internal strategic alliances

Associating with other wealth managers or specialists may also lead to new clients and push up practice revenue. According to PII respondents, wealth managers, on average, generated 12% of their annual revenue from formal internal strategic alliances. One example is when another wealth manager accesses your practice’s services through a revenue-sharing agreement. These relationships may add to your value proposition and attract those willing to pay for the expertise. A systematized process for developing these relationships may lead to growth. 

Allying with a specialist or another wealth manager may enhance your competitive positioning and expose you to possible clients. We have seen that it helps, of course, if the relationship is built on clear communication and close collaboration. Cerulli Associates data has shown that hosting a joint meeting with clients and prospects is an effective way to build strategic alliances.¹ These meetings have the potential to turn into warm leads. They may also surface potential clients who already have relationships with other financial professionals but are open to guidance. This sort of cross-promotion works for two-thirds of the practice management professionals surveyed.¹

Building a successful strategic alliance takes time, but we have seen that starting with an existing long-term relationship helps. With expanded services and expertise, wealth managers can potentially differentiate themselves, achieve scale, and gain a competitive edge. Greater success may follow from specializing in a client niche and partnering accordingly. Focusing on women investors in transition, for example, may mean collaborating with divorce attorneys, forensic accountants, and estate planning specialists. A niche can potentially anchor a wealth manager in an ecosystem built around their clients’ needs. Specialization may enable more effective networking with professionals offering complementary services.

Take the next step

A robust referral network is, in our view, foundational to a successful wealth management practice. Referrals may open up opportunities to welcome new clients, a cycle that can potentially build upon itself to help a practice grow. In our observation, the most successful practices generally enjoy a steady stream of referrals from clients and COIs, external strategic partnerships, and internal strategic alliances. Developing relationships that pay off in referrals takes time, planning, and effort, but the outcome may be long-term sustainability.

Invesco Global Consulting can help.

Our “’Building a Referral Pipeline’ Toolkit” brochure³ shows you how to turn relationships into referrals. Framed as an offer of help rather than a request for a favor, we have seen that the referral conversation can deliver results without seeming awkward. 

“The Referral Code” — our business-building program — is built to help you cultivate high-net-worth clients and expand your professional network. We reveal the secrets of top performers and provide actionable steps designed to help grow your business through strategic partnerships.