A new approach to prospecting
Recent conversations with investors and advisors have convinced me that we are in the midst of a significant shift in our business when it comes to how we attract new clients – something that will lead to the death of mass prospecting as we’ve historically known it.
Replacing that will be a fundamentally different approach that takes a more “prospect-friendly” approach to the client development process.
As an aside, this has little to do with the market decline of 2008 – and everything to do with the reality of a much more informed and skeptical consumer than in the past.
The last twenty years has seen a steady and precipitous decline in the response rates to all the traditional forms of mass prospecting. As a result, we are in the midst of a dramatic – and in my view permanent – shift in what it will take to attract new clients going forward. The essence of this change is that the traditional divide between communication to clients and communication to prospects will disappear – and advisors will have to start treating prospects like clients from the moment they start talking to them.
The past
As recently as the sixties, the 10-3-1 rule still prevailed in the insurance industry – if you spoke to 10 prospects, you got three appointments and had a high likelihood of making at least one sale.
In the late eighties, mail drops offering free research reports garnered return rates of 10% to 15% – if you mailed out 500 letters offering a research report, you could expect 50 to 75 responses.
In the mid nineties, hotel rooms across Canada were packed with prospects attracted by newspaper ads offering free seminars featuring media celebrities such as Brian Costello, Jerry White and Garth Turner. Many advisors built their businesses based on the turnout to those seminars.
In the words of cult novelist S.E. Hinton, “that was then … this is now.”
The present
Even before the market events of last year, response rates to mass marketing of all forms had seen a dramatic decline. A conversation last spring with a Toronto advisor from one of the bank owned brokerage firms drove this home.
This advisor had been in the business about six years and focused his prospecting on running dinner seminars at elite restaurants in high-end neighbourhoods, featuring his firm’s managed money program in an after dinner talk. With financial support from that program, his practice was to conduct dinners in private rooms at the highest end restaurants he could find. His goal for each dinner was to attract ten households, either single decision makers or couples.
The managed money program took care of all the details – booking the restaurant and mailing out embossed “wedding style” invitations to affluent areas close to the restaurants, targeting communities where investable assets were likely to be $1 million. All the advisor had to do was to show up, deliver his talk and follow up with the attendees.
I had two questions: How many of these “wedding style” invitations did it take to get out ten households willing to avail themselves of this free dinner? And what was the conversion level to clients among those attending?
The answers:
It took about 1000 invitations to get 10 households out - a response rate of 1%.
And how many sales did he make to the ten households who typically attended?
The answer: His goal was to make one sale – occasionally he made two, but not infrequently he got no new clients from the dinner.
This conversation illustrates just how dramatic the drop in return to mass prospecting has been — and this was before the spike in skepticism as a result of the market excitement since last September.
And here’s the real killer. Not only are response rates way down, but even when you do get a response, prospects have their guards up, afraid of “being sold.”
The future
My conclusions are simple: Every form of prospecting has always ultimately been a numbers game – and always will be. That is true of focusing on referrals just as it is of mass advertising. The big change is in what those numbers look like – the return on high trust activities such as referrals has been stable and in some cases improved, while the numbers on mass prospecting have plummeted.
The bottom line: Dropping response rates will make the economics of mass prospecting less and less attractive.
One important implication of this is that the traditional divide between communication to clients and communication to prospects will disappear.
Given the growing level of skepticism on the part of the investing public, the most compelling communication to prospects will not relate to prospecting breakfasts, lunches, dinners and workshops. It will not feature special offers advertised in the paper or offered via direct mail. Nor will it focus on cold calls to business owners, offering a second opinion on their situation.
It’s not that these approaches can’t work – anything within reason will work if you do enough of it. The problem is that the response rate to anything that investors see as a “sales pitch” is already low and will only decline further. (Note that there is an exception to declining response rates if an advisor has built visibility and credibility in the prospect populations he or she is targeting.)
So if mass prospecting won’t work, what will?
The answer relates to the response when you ask investors who select a new advisor what the key factor in their decision was. The answer: “I felt I could trust this advisor.”
That’s why high trust approaches based on referrals consistently show up as the most effective prospecting approaches. Whether it be referrals from clients, professionals or other parts of the financial institution you work for, the reason referrals work is that they’re fundamentally a transfer of the trust that someone has in you to a friend, colleague or client they work with. (And the more assets someone has, the more critical referrals tend to be.)
That’s why focused effort to become the trusted “advisor of choice” against a defined target community will continue to yield results. (Without pushing this parallel too far, this is why Bernie Madoff’s got so many of his assets from retired Jewish businessmen in New York, Florida and Southern California – he built a position as the trusted, go to resource for this community and was the beneficiary of word of mouth among that group.)
Merging client and prospect communication
And that’s why going forward successful advisors will not have separate streams of communication for prospects and clients, but will instead integrate the communication to clients and prospects.
Rather than telling prospects that you’d like to send them an information package on your services, advisors will say: “I’d like to put you on the distribution list for the material I send my clients, so that you can get the sense of the kind of communication my clients receive.”
Rather than spending money on brochures and audio and video business cards, advisors will focus on building client friendly websites, packed with useful information and resources for clients – and then invite prospects to browse their site, giving them a sense of what life as a client would be like.
And rather than inviting prospects to special workshops or lunches for prospective clients (and have these prospects with their defenses up, waiting for the sales pitch), advisors will say: “I run a regular series of sandwich lunches in my boardroom for interested clients, talking about what’s happening in markets. If you’re interested in sitting in, I’d be happy to have you join us.”
It would be wrong to suggest that this approach is entirely new.
In the late 90s, I talked to an investment advisor focused on high end investors with $5 million plus about how he had built his client base. What had worked best for him were monthly lunches in a private club he belonged to for any existing clients interested in attending. Some clients attended two or three times a year, many others never attended – in his view, the key was that all clients had the opportunity to attend.
These lunches were very informal – typically he spent no more than 20 minutes highlighting recent market developments and his outlook for the period ahead, then opened the floor to questions and discussion. He limited attendance to twelve people – if there was more demand than that he held another lunch.
He had tried many ways to bring new clients on board before hitting on this approach – but found this had far and away the most success. His focus when talking to prospective clients was to get them out to one of these lunches – and over time, he found that clients became comfortable inviting friends to attend along with them.
Recently, I talked to an advisor who picked up on this idea. He began twice monthly lunches, with a view to getting eight people in the room for each one – ideally six clients and two prospects.
There were two ways he got prospects out. The week before the lunch, he called clients who were coming and said: “I’m delighted you can make it next Friday. This lunch is intended for clients but I do have one extra spot and was wondering whether one of your friends or business colleagues might be interested in coming along with you.”
Along the same vein, he contacted prospects he’d been talking to and said: “Two weeks from Friday, I’m hosting a small luncheon roundtable for some of my clients to talk about market developments and the outlook going forward. While this is intended for clients, there is one spot available – if you’d like to sit in on this, I’d be pleased to have you along as my guest.”
All of this assumes, of course, that advisors have client communication that they can point prospects to – whether it be investing in a client friendly website, sending articles on a regular basis, offering conference calls or hosting client luncheon roundtables and presentations. (If you’re interested in learning more about some of these tactics, take a look at the Winning Strategies in Challenging Markets video interview series on this website.)
The good news is that for advisors who do invest the time and effort to ramp up client communication, extending it to prospects is both an effective and efficient method of maximizing the return you get on that investment … and will allow you to get past the downward spiral in response rates to mass prospecting.
 Email This Post
|
 Print This Post
|
