Building a network of business allies and contacts can serve your practice well.
This monthly series of articles describes the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Currently, Garnet has eight staff members, more than 90 clients, more than $300 million in client net worth under advisement, and offices in Bethesda, Md., and Boston. Veena Kutler, CFA, and Annette Simon, CFP, are the managing principals in the Garnet office in Bethesda.
We attend many conferences and workshops and over the years have listened to dozens of sessions on client development. Still, we continue to attend these marketing sessions in search of helpful hints and strategies from others who have built thriving businesses. One frequently mentioned idea is that planners should build circles of influence--develop a pool of experts around themselves to create cross-referral opportunities.
Referrals: the Road to Growth (or Not)
We took this concept to heart some six years ago when we first launched our business and over the years have developed strong relationships with a variety of professionals including CPAs, estate attorneys, insurance agents, bookkeepers, pension specialists, therapists, and mortgage bankers. We've had (and paid for) countless lunches and told our story of ongoing, high-touch, fee-only service over and over again.
Have we received referrals as a result of this effort and expense? Some clients have come to us through these centers of influence--most after we had known the referrer for several years and previously sent multiple referrals their way. In fact, we've found that we refer out many more clients to our centers of influence than they refer to us. And some allied professionals whom we have known and enjoyed working with for years have never referred a single person who has become a client of Garnet.
In 2000, when Veena first left the institutional investment world to begin working with individuals she reached out to two professionals in her home town. One was a CPA she had known for many years; the other an estate attorney to whom she was referred by some friends. The CPA expressed interest in Veena's practice, and a day after they spoke referred a very nice couple who are clients to this day. Interestingly though, it was five years before another client came to us from this particular referral source.
The estate attorney invited Veena to lunch and vetted her thoroughly, asking a series of questions related to fees, experience and strategy. The attorney was satisfied with Veena's answers and said that she was looking for an experienced, fee-only professional whose client minimums were low. She had existing referral relationships with planners who had higher minimums, but had no one to refer clients with fewer resources for help with investment and financial issues. Within a few weeks the estate attorney referred a client to Veena. The client was a good fit and that relationship continues to this day.
The attorney continued to send occasional referrals to us, but more often than not they were not a good fit for our practice. (In part this was due to a rapid increase in our minimum fees, which left our friend the attorney once again on the lookout for good advisors with low minimums) In the almost eight years we have known her, only two more referrals have become clients. In that time we have sent more than half a dozen of our clients to this attorney for estate planning work.
During her pre-Mosaic and Garnet years Annette struck up a friendship with a local insurance agent who is very knowledgeable and committed to strong client service. We refer clients to this agent time and again for long-term care, disability and life insurance quotes, and have purchased our own policies--both personal and practice-related--from her. With the exception of a one-time client project referred to Annette back in the late 1990s the agent has never once sent us a client referral--even though she has a very strong network of wealthy and influential friends and contacts in the Washington, D.C. area.
Another long-time resource is a nationally known estate attorney we have sent several clients to and whom we have hired to help us review complicated wills and trusts that clients bring to us. We've met with him many times and have reason to believe he sees us as capable and highly qualified advisors. Yet, in all this time, the attorney has sent only one referral who did not become a client of the firm.
Is It Worth It?
After reading these anecdotes you might ask why we continue to bother spending the time, money and effort to develop and maintain strong relationships with allied professionals. And why in the world do we continue to refer clients to sources that do not fully reciprocate? It's not because we're fools or even hopelessly optimistic. We do so for two reasons: 1) Our professional referral sources are really our extended staff--the secret to providing in-depth, large firm services within an intimate small firm environment, and 2) Over time we have seen that building a network of professionals who truly understand our service, who can and will effectively refer clients to us requires patience, continued effort and a long-term view.
In a recent speech, Chip Roame of Tiburon Consulting opined that planners get the bulk of their referrals from existing clients and not from centers of influence. Our experience indicates that Chip is at least partially right and that a fledgling planner should not plan to build a practice by relying solely upon referrals from professionals. Nevertheless, we believe that building a network of experts you can call upon to help your clients deal with various aspects of their financial lives is critical to the success of a growing practice.
Outside Experts Enhance Our Value to Clients
To us, it has become very clear that the greatest value of the outside professionals we work with is their specialized knowledge and support in our client work. Looking back on the many complicated client situations where we have sought expert help, the benefit of having a circle of diversified talents becomes apparent. Working with our high net worth clientele, we've encountered clients with a very wide range of issues. While we attend a lot of continuing education sessions and are familiar with a broad variety of topics, we simply can't be experts on all of them. Without a large staff with multidisciplinary expertise, growing a network of specialists who can step in and help you and your clients is the only feasible way to meet all of your clients' financial needs.
Here are a few examples of the types of situations in which our team of allied professionals has saved the day for our clients and for us:
Because tax laws are ever changing, it's an area where we struggle to stay current and fully informed. Our network of CPAs and pension consultants has been an invaluable resource over the years. One client with a large inheritance saved thousands of dollars in taxes thanks to the quick action of a CPA who took advantage of newly enacted tax code. Another client was able to save a more modest sum on state taxes by their CPA's recommendation to switch between two types of retirement accounts. A third client will be able to retire in a few years largely because seeing a golden opportunity for him, we connected him with a pension specialist who designed a retirement plan that saves him and his partner more than $50,000 a year in taxes.
As part of our coordinated service, we have our clients' wills and estate-planning documents reviewed at our expense by attorneys we trust. In almost every review, our attorneys have found inconsistencies if not major problems with the existing documents. In one example, the attorney discovered that the husband was inadvertently cutting the wife out of his trust completely (and vice versa in her trust document). We spoke to our clients to confirm that this was not their intention and recommended a re-drafting of their estate documents.
Insurance and Annuities
The language in insurance and annuity contracts is generally abstruse and confusing (by design we speculate). Few financial professionals really understand them, much less the consumers who are sold these products. We read the contracts ourselves and can pull out basic information like surrender charges and fee schedules. Many times though, we turn to trusted insurance agents to help us interpret the fine points of a particular contract and the implications to our clients. Our insurance advisors have also provided invaluable assistance in understanding and obtaining property and casualty coverage for high-net-worth clients as well as medical insurance for clients with pre-existing conditions.
In Time, Better Quality Referrals
As we mentioned earlier, our professional relationships have been fairly one-sided over the years--attorneys and accountants have received many more referrals from us than they have sent in return. We believe that there are a few reasons for this imbalance. Many clients of CPAs and attorneys are already working with a financial advisor. We also know from experience that many prospective clients just don't follow through on their advisor's recommendations to call us, or they receive multiple planner referrals and choose to contact a different planner.
Some referral sources are looking for financial compensation for client referrals, an arrangement we're unwilling to agree to. As part of our overall ethical commitment to our clients, we neither pay for nor receive payment for referrals--ever. This allows us to maintain our objectivity and select professional referrals based upon their abilities and expertise, and not because they are paying us. While taking this stand may have reduced our referrals, it is a loss we are willing to accept. And in all fairness to our professional contacts, we believe most of them share our values and are primarily concerned with providing high quality service to their clients, not in being paid for referrals.
On a positive note, we have seen that time and experience working together makes all the difference. Through the process of working together on clients we have referred to them, our colleagues in other professions usually begin to develop an appreciation for the quality of our work and the depth of service we provide. When this happens, they start to refer suitable clients and we've had great success in converting those referrals into mutually beneficial, ongoing client relationships. By continuing to communicate with our centers of influence and to work together with them on client issues, in time they become the referral sources we hoped they would be years ago. Like so many worthwhile rewards in life, it requires patience and diligence to build a thriving professional network.
One motivation behind our column is to examine theoretical practice management concepts within a real-life setting--and then to share our findings with our readers. As you have seen above, building a practice from professional referrals has not worked exactly as predicted for us. However, our network has been valuable to us in running our practice.
We are curious about the experiences of other planners in this arena. Have you built your practice by expanding your circle of professional contacts--or have you received valuable help from an allied professional? Have you found a professional network to be helpful to your practice? Write to us at DC@garnetgroup.com and tell us about your experience.
In next month's column we will discuss staffing--the balance between sanity and profitability.