Monday's article talked about three flaws in advisor thinking about referrals - here are four more misconceptions that stand in the way of referrals.

Misconception 4: It's all about satisfaction

            Your goal should be to have clients who are satisfied

In fact:

Research commissioned in 2009 by Vanguard and conducted by research firm Advisor Impact demonstrated that for clients to initiate referrals, they have to be more than satisfied - they have to be engaged.

Among the keys to engaged clients are a discussion of clients' full financial needs, a written plan and strong, ongoing communication - as well as a connection between advisors and clients that goes beyond a mere business relationship.

At one time, satisfaction with an advisor was good enough ... but not today.

Misconception 5: Keep client relationships purely professional

            You should operate on a purely professional basis, no differently than an accountant or lawyer  ...             getting into "soft" issues undermines your image of professionalism

In fact:

There's an old expression that "clients don't care how much you know until they know how much you care."

Unquestionably, there are some clients who have a "just business" mindset ... some time-pressed CEO's and entrepreneurs or super analytical engineers and accountants, for whom it's all about the numbers.

Research shows that these clients are in the small minority. Even if you've succeeded in "engaging" clients, most people want to feel good about their advisor, to have the sense that you're motivated by more than the revenue they generate.

Of course, activity to show you care is only effective if it's delivered on a foundation of strong value and solid service.

But once you're delivering that value and service, to maximize the relationship with many clients, you have to do more - and take the relationship to a personal level.

One of my recent columns talked about an advisor whose clients rave about her because she regularly sends them funny, upbeat books about key events in their lives. And it's not about the cost - she's in the bottom 10% of top producers in her firm on the amount spent on client recognition, but in the top 10% on client loyalty and share of assets. The reason these books work is because they're personal, unexpected and tap into positive moments in clients' lives.

In general, the feedback on this idea from advisors was very positive ... although I did hear from one dissenting advisor, who wrote "I have a CFA and came into this business to be a professional, not a concierge at the Four Seasons."

Life is all about choices - and if staying detached from personal aspects of client lives is your choice, that's a legitimate decision. But remember that if you ignore the emotional aspect of relationships, for many clients you are putting an upper limit on their level of attachment and you're kidding yourself if you don't think that has an impact on their tendency to provide referrals.

Misconception  6: Clients provide referrals to help you

            If you've done a good job, clients want to help you out and in fact will feel an obligation to             reciprocate with referrals.

In fact: 

Today, most clients take the view that the reward for your doing a good job is that they'll stay a client - and feel no obligation whatsoever to refer people they know to you. Yes, they'll pass your name along to friends who ask, but they're unlikely to take the initiative on this.

Remember, the reason that clients provide referrals is to help their friends, not their advisor. As a result, phrases like "I'd like to ask a favour" or "Please don't keep me a secret" are unlikely to be successful.

Misconception 7: You should check for satisfaction

Before raising referrals, you should ask clients if they're happyyou want to avoid asking clients for referrals if they're not satisfied themselves and if someone says they're happy, they'll feel greater obligation to refer you to friends

In fact:

There's no question that you don't want to bring up referrals with someone who's dissatisfied. But here's the problem with asking clients if they're happy in the lead up to a conversation about referrals.

 Imagine that you and some friends have been out for a dinner that while not a disaster has been average at best - average food, average atmosphere, average service, average value. Everyone comments that they wouldn't be in a hurry to return.

At the end of the meal, the owner comes over to your table and asks if you enjoyed your dinner.

To which the vast majority of us say "Very much" or "Absolutely."

It's not that we're consciously trying to deprive someone who's got his life savings invested in this restaurant of desperately needed feedback - it's just that most of us hate conflict and it's easier to say dinner was fine and walk away. Plus, we're not sure if he really wants our feedback or is just going through the motions, was told at restaurant school he should ask patrons at the end of their meal if they enjoyed it.

Now picture a situation where during a meeting you say to a client:

"Tell me, are you happy with the job I'm doing for you?"

Even if they're not terribly happy, very few clients will say so.  Most will say they're happy and move on.

So if you want to get a handle on how clients feel, you need to ask the question differently, in a way that they can answer honestly while still feeling comfortable.

Suppose you say to a client:

"I wonder if I could get some feedback from you.

On a scale from 1 to 10, how comfortable are you with the level of risk in your portfolio - with 1 being not at all comfortable and 10 being very comfortable?"

Few clients want to create conflict ... so even if they're not terribly comfortable, most will rank you with a 5 or perhaps a 6, thinking that's a passing grade.

Meanwhile, we know that nothing less than an 8 out of 10 is acceptable ... anything below an 8 on issues like communication, service, responsiveness or being on track against their long term goals  is a red flag that means you have work to do before you introduce the topic of referrals.

It's not that you shouldn't check for feedback ... but you need to ask in a way that's going to give you honest answers.

So those are some initial misconceptions that stand in the way of referrals. I'll be covering off more referral mistakes next week.

In the meantime, if you aren't happy with the quantity and quality of client referrals you've been receiving, consider picking one of the seven issues I've outlined in the columns on Monday and today and focus on addressing this one area in the next week.

It's not that the other six aren't important or might not help you increase referrals, but we change the way we learned to walk ... one step at a time. So pick one to focus on ... and make that your priority.