When it comes to attracting new clients, every advisor knows that nothing beats referrals from satisfied clients.

And the statistics bear this out:

A U.S. study by Cerulli Associates, for example, indicated that over half of investors who selected a new financial advisor in 2009 did so on the basis of a referral.

Common referral mistakes

Despite their desire for new clients, many advisors hold fundamental misconceptions about what it takes to get quality referrals. As a result, they either don't talk about referrals at all or do so ineffectively.

 The biggest reason for the reluctance to raise referrals is the incredible amount of bad advice on this subject - advocating  methods that put both advisors and clients under pressure or position the advisor as a needy supplicant

To the extent they do raise referrals, many advisors do it in the wrong way and ask for the wrong thing, focusing on "asking for referrals" rather than "having referral conversations"

And the biggest mistake of all - a remarkable number of advisors' entire approach to referrals is rooted in their own agenda, rather than today's client reality.

In upcoming columns, I'm going to cover some common misconceptions - and the realities that you need to understand if you're going to maximize the number of quality referrals you get in 2011.

Misconception 1:  Understanding how referrals happen

 Fiction:

Referrals don't happen on their own - you have to make them happen. 

Fact:

 A substantial number of referrals aren't initiated by your clients. Instead,  someone  they know asks them if they have an advisor they could recommend.  These are "reactive" referrals - all your client has to do is respond.

These are the best kinds of referrals - no pressure on your client, with a prospect who's ready to move.

Because their friend has initiated this, the satisfaction threshold for clients to make a referral here is lower than for referrals that advisors initiate. As long as you've done a good job and they're reasonably happy, all that it normally takes for the referral to happen is for clients know that you're open for business.

So that's the first step - in a professional, low key fashion, let the people you work with know that on a selective basis you're taking on new clients .

More on how to do that next.

Misconception 2: How and when to talk about referrals

Fiction

It's best to ask for referrals as part of a spontaneous chat at the conclusion of a meeting.

Fact

When meeting with clients, it's clear that their needs have to be dealt with first ... the challenge is doing that while still bringing up referrals in an effective fashion.

One difficulty is that to the extent referrals are mentioned at all, they're often left to a passing request at the very end of the meeting, as clients are putting their coats on and are on the way out the door.

To be effective, referral conversations need to be incorporated into the body of a meeting. By far the best way to achieve this is by adding a discussion item when setting up the agenda for an upcoming meeting.

Here's how you might add referrals to a meeting agenda:

"In addition to addressing the questions you're raised and the other things we'll be discussing, there's one final thing I'd like to talk about when we meet a week from Friday

In the next year, I have capacity for fifteen new clients.

At the end of our meeting,  I'd like to spend three  minutes talking about the profile of clients I've found I can help the most, in the event you're  talking to someone considering making a change who might be a candidate for one of those spots."

Let's be clear. Your goal here is not to "ask for referrals" - rather it's to initiate a short conversation about your approach and the kinds of people who would benefit from working with you ... the next step is to bring up a comfortable way for clients to introduce you to people they know.

Misconception 3: What to ask for

Fiction:

Your goal should be to get meetings with your clients' friends and family.

Fact:

The biggest obstacle to clients providing referrals comes down to one word - and that word is "risk."

 For many clients, asking friends to meet with you entails a great deal of risk.  They're worried that this may result in friends being put under pressure, that suggesting that friends meet with you is a stronger endorsement than they're comfortable with  or that if things don't work out, their friendship may be jeopardized.

The  best way to overcome this is to change what you ask for, to something that is more comfortable and less risky for clients to provide.

That doesn't mean there aren't instances where prospects have indicated they're ready to make a move, in which  the appropriate goal is to set up an immediate meeting.

But those aren't the norm. Generally, your objective should be low key introductions, not high stress meetings.

Let's suppose you're doing a good job of supplementing face to face and telephone conversations with other forms of communication - whether it be regular newsletters or articles, quarterly conference calls, or invitations to luncheon roundtables or evening updates.

Now you have the opportunity to demonstrate patience and focus on providing real value to your clients' friends by saying something like:

"While the main reason that I email clients the monthly articles you've been getting from the New York Times, Fortune and similar publications is to keep you up to date, I've also found them a comfortable way for potential new clients to get to know me."

"Feel free to forward the emails you get to people you know who might find them of value."

"And should your friends wish to receive these emails themselves, either they or you can send me a quick email and we'll be pleased to add them to the list"

And depending on how comfortable you feel with this client, you could go on to say:

"You've mentioned your colleague at work Mary Smith as someone I should get to know at some point. Do you think she'd be interested in receiving these articles?"

On Thursday, I'll be talking about more reasons you don't get referrals ... and what to do about it.