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Be careful about giving referrals

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“When I introduce you, I’m gonna say, “This is a friend of mine.” That means you’re a connected guy. Now if I said instead, this is a friend of ours that would mean you a made guy. A Capiche?” – Al Pacino in Donnie Brasco.

As a retirement plan provider, you are often asked to give a referral to other retirement plan providers. If you’re a financial advisor, you might be asked for a referral to a third party administrator or an ERISA attorney.

The problem with referrals is when they come back to bite you. A request for a referral by a client is something based on trust, they trust that you know who is good and who is not. When you give a referral to a good provider, you look that much better in the eyes of your client. If you give a bad referral, you look terrible and I have run into providers who have lost business just because of a bad referral.

So it’s important that any referral is based on first-hand knowledge of a provider’s competence. Referring to a provider because they may refer you back in business is a bad idea and using a referral, as some sort of tryout to network with other providers isn’t either. Your word is your bond and a bad referral is almost the same as breaking your word because it’s a break in trust. Trust is one of the most important things that a client should have in their provider. So be careful with referrals.

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