At Abacus, we’ve been thinking about referrals a lot in the last few weeks. In particular, why the experience in the UAE is so markedly different from that of the US and UK. In those countries, a personal recommendation from an existing client is the primary source of new clients for most high-quality advice firms. The UAE experience is not quite the same and, while we get a steady stream of personal recommendations, more could be done to improve access to quality financial planning advice in the UAE. I decided to take this one on and do some research.
Firstly, what is a referral? It’s a happy customer or client of a business, telling a friend or close associate about their experience. It’s also anyone who has had a great experience, telling people they care about to check it out. When you think about it, regardless of the TV adverts, billboards and all the online marketing content, we are often drawn to a product or service through word of mouth. Someone just like us says something positive about a film, book, restaurant, shop or whatever, and we then go and check it out. In modern society, this increasingly happens online.
If you’ve ever made a recommendation to a friend or close associate, you will also be aware of how it makes you feel. Reciprocity (the practice of exchanging things with others in society, for mutual benefit), is a powerful element that contributes to a healthy relationships. You’ve found something great and you want other people you care about to benefit from finding it too. This drives countless discussions between friends. However, while this ease of conversation applies to most aspects of a friendship, money is often a taboo subject. Evoking strong emotions (particularly fear and greed), money is one of those subjects that is almost always approached with caution.
I spoke with a few clients about referrals, to get a first-hand idea of their experience. Two discussions stood out in particular: one with a client who has referred the majority of his closest friends to us for help with the financial planning and another who has never referred anyone to us. The former reported that he was keen to help his friends do well, was equally keen that we do well as a business and was very comfortable talking about money and describing the benefits of financial planning. The latter also cared about those close to him, but wasn’t sure we wanted more clients and had no idea how to have the conversation with those close to him. As those conversations continued, it also became clear that these people had had very different historic experiences with money and financial advisers.
There are a few high-level reasons why people don’t always shout about their financial adviser. Regulatory standards are a significant factor. In the US and UK regulatory standards are high, the full disclosure of costs drives product quality and advisers have had to disclose their remuneration for a long time. Professional qualification requirements are also a factor, helping to increase the focus on advice and reduce the sales focus. Taken together, these factors result in a high level of confidence in financial advisers in those countries and, consequently, high levels of referral. In the UAE we have some way to go but we are catching up. The introduction of new regulations designed to benefit investors (called Bod 49 and covered here), should really help to create the same environment for referrals in the future.
In conclusion, reciprocity is powerful and seems to drive a lot of positive human behaviour. When people find something great (like a firm of financial planners based in the UAE but working to US and UK standards), they like to tell those close to them, if they are able to do so. Our clients tell us that when they talk to their friends about how financial planning has made them feel more confident about their situation and the path they are pursuing, their friends are always appreciative of the tip.
By David Maclaren – BA(Hons), ACSI