Here's a very interesting piece on the challenges financial companies face in an era of declining response from traditional lead generation techniques.
http://advisoranalyst.com/advisor/tag/garth-turner/
Wednesday, May 4th, 2011
Note: First published in March 2009, this article was ranked first out of over 500 articles published in 2009 by Horsesmouth.com, the leading online site for U.S. financial advisors. It sets out some new thinking on what it takes to attract new clients today – and is just as relevant in January 2010 as it was in March of last year.
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 attracting new clients – something that will lead to the death of mass prospecting as we’ve historically known it.
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 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.
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.”
