Cold-calling is a fishing expedition. It’s dialing someone’s number, or sending an e-mail, without being asked to do so in an attempt to sell a good or service.
And for some financial advisors, it works.
Approximately 50 percent of investor-advisor relationships begin with a referral from a friend or family member of the investor. Our research shows that such referrals most often come from business associates or a personal friend more so than from a parent, but the fact is that those relationships begin because the investor knows someone who knows the advisor.
But our research study Advisor Relationships and Changing Advice Requirements shows that at least 10 percent of all investors initially located the advisor with whom they presently work because the advisor made first contact.
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Among Mass Affluent investors with a net worth between $100,000 and $1 million, 10 percent said their advisor made first contact. It was also 10 percent among Millionaires with a net worth between $1 million and $5 million, and it was 11 percent among Ultra High Net Worth investors with a net worth between $5 million and $25 million.
In fact, cold-calling finished second to family and friend referrals on the list of ways investors found their advisors. Advisor cold-call contact was much higher in making connections than seminars (6 percent among UHNW investors), general advertisements (3 percent), advertisements in financial publications (3 percent) and websites that provide detailed information on advisors (2 percent).
(“Other” was selected by almost 25 percent of investors to explain how they initially found their advisor.)
There are numerous websites offering the secrets to cold-calling practices for financial advisors, but they all aim toward the same message: Find a target audience (corporate executives or business owners, for instance), provide the information that can help an investor investigate you (like a website address or Facebook page name) and get out.
“There was a time when financial providers frowned on cold-calling, but that is no longer the case,’’ said Spectrem president George H. Walper Jr. “Thanks to the Internet, financial advisors can find investors who might be in the market for a new or better financial advisor. While cold-calling might seem like an irritant to some people, to others it shows ambition, and some affluent investors are likely to find that appealing.’’
The difficulty in cold-calling is appealing to the desires of investors in the very short time you have to grab attention on a phone call or in an e-mail. Our researchers show that investors consider honesty and trustworthiness, responsiveness to requests, and performance of investments against the stock market average to be the top attributes of an advisor, and none of those can be demonstrated in a cold call.
But it would behoove financial advisors making cold calls to understand why investors switch advisors, and perhaps play to those tendencies. According to our study Why Investors Switch Advisors, the top reason investors switch advisors is because the advisor was not being proactive in contacting the investor (24 percent of investors who had switched advisors).
Similar percentages switched because the advisor did not provide good advice or because of under-performance against stock market averages. However, 16 percent switched because of high fees and commissions, and 12 percent did so because advisors did not return phone calls in a timely fashion.
Reaching an investor by phone to introduce yourself, and knowing a little bit about that investor from a basic information search, might be an indication to the investor that you are not afraid to pick up the phone to maintain contact as well as establish it in the first place.