In the words of the eighties musical ‘sensation’ C+C Music Factory, there are “things that make you go hmmmm.”
Today I put the spotlight on some research that brings those words to mind. (And if my cheesy musical reference gets you in the mood for some of the questionable music we heard in 1990, click here.)
Every year we study investors and their relationships with financial advisors, to understand what they need, want and expect. In 2017 we made some adjustments to the study to focus in on high net worth clients, with a third of clients having $500k – $999k in total investable assets and two thirds with $1m+.
As a result of the shift in focus to high net worth clients, we saw exactly the kinds of differences you might expect. While clients are generally satisfied with their relationships with their advisors, high net worth clients are more satisfied, more loyal and more likely to refer.
What wasn’t expected was the connection between satisfaction, referrals and age. Specifically, I examined the data for clients who are under 50 years of age (a largely Gen X sample) and they surprised me.
In a nutshell, younger clients break the connection between satisfaction and referral activity.
For years I’ve highlighted the fact that satisfied clients don’t necessarily refer. That’s still true. I’ve also noted (more than once) that being comfortable referring doesn’t mean you will refer. That’s also still true. However, despite being an imperfect relationship, it has always been true that more satisfied clients are more likely to refer. Unless, it’s seems, if you’re younger.
Here’s the good news.
Clients who are 50 and under refer more often. So if you have been discounting the value of your younger clients, you may be missing out on an extraordinary opportunity.
Because the sample in this study is all high net worth clients, the overall referral rate is higher than you might typically see. In our last study about a third of clients reported having provided a referral and we know, of course, that advisors don’t meet most of those prospective clients. When we look at clients with $500k or more in total investable assets, that number jumps to 50% so keep that in mind as a starting point.
Clients who are under 50 are more than twice as likely to say they had provided a referral in the last 12 months. Eighty percent of younger high net worth clients said they told someone about their advisor. Impressive.
You also see this trend reflected in the Net Promoter Score, which measures the likelihood that clients will refer. In my opinion, the metric is a proxy for the overall quality of the relationship rather than an indicator of referral activity. That is, when someone indicates they are “very likely to recommend their advisor”, they probably feel good about the relationship but they may or may not actually refer. In our study the Net Promoter Score for those who are under 50 was 66%, dropping to 41-42% for everyone else.
Younger clients are not only more likely to refer, but more likely to refer multiple clients.
But here’s is the thing that makes you go hmmmm. Younger clients are less satisfied and loyal.
While younger clients refer more often, they are, relatively speaking, less satisfied and less loyal than other clients. They are even less likely to say they are comfortable providing a referral. Curious.
Explaining the Mystery
Explaining the mystery relies on some data and some opinion. Let’s start with the data.
In general (and across industries) younger people express relatively lower satisfaction with products and services. It doesn’t necessarily mean that the experience is bad but may simply reflect a propensity to be more critical. We also see differences between countries so this makes some sense.
I asked Kevin Quigg about this phenomena. He is the Chief Strategist for Exponential ETFs and a driving force behind the first financial advisors report from the American Customer Satisfaction Index (ACSI) He pointed out that their research demonstrates a link between client satisfaction and both high levels of competition and low levels of elasticity (how easy it is to switch from one provider to another). Financial services, he says, is the 9th highest rated industry, on average, when looking at these metrics. And this could reasonably explain the differences uncovered between age groups.
He had this to say. “Where this ties into the different satisfaction levels of younger vs. older people is that as we have entered a global marketplace most younger people are used to more choice and thus have higher expectations. Older people grew up in a less competitive market and have lower expectations.” Quigg acknowledges this is a generalization but it supports the idea that younger clients will likely provide lower satisfaction ratings. (Side note, Kevin is a guest on an upcoming episode of the Becoming Referable podcast.)
If this is the case, then it is likely that younger clients simply refer more often and that fact is somewhat unrelated to satisfaction.
But why do they refer more often?
The research is less clear on this point, so I turn to a somewhat informed opinion. All of the research I’ve read suggests that younger clients are community builders. They share information more readily and more often and have the technology at their finger tips to make that possible. It seems likely that this characteristic supports an increased level of referrals.
How Can We Encourage More Referrals?
From a tactical perspective, the most interesting result relates to our ability to encourage more of this activity from younger clients. And the data provides us with meaningful direction on how to make that happen.
The fact is that younger clients refer in different ways. They are less likely to send a friend or colleague the name of an advisor and more likely to share relevant content, including invitations to events. They are all about sharing value, not just contact details.
If this is the case, then shareable content wins the day when it comes to driving more referrals from the segment that is most likely to provide those referrals. That means we need to get intentional about our content strategy and get more information in the hands of our clients that addresses their unique problems and concerns. They want to share those insights.
Ultimately the mystery is an opportunity. I’ll dig into this more in future research as it’s clear we can’t assume that the things that have driven referrals in the past will be the same in future.
Thanks for stopping by,
P.S. If you’re interested in reading more on referrals, this post includes links to the five most read articles (from this blog) on the topic.