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Cold Calling on Ice

The new federal do-not-call list promises to make cold calling a more challenging process. But this tried-and-true prospecting procedure is a resilient beast...

When the Federal Trade Commission launched its National Do Not Call Registry initiative on June 27, allowing Americans to block unwanted phone solicitations, John Q. Public roared with approval: The service registered 13 million telephone numbers over its first weekend of operation and another seven million over the following week. That's quite a declaration by Mr. Public. And he is not talking just to credit card hawkers and phone-service pitchmen: He's talking to you.

“The rules are very clear: Unless a firm has a previous business relationship with someone who is on a do-not-call list, they cannot call that person at all,” says Christine Conlon, a spokeswoman for the Securities Industry Association. “We've done what we can to let everybody know that.”

Liability under the new regulations kicks in on October 1-30 days after the FTC list arrives on the doorsteps of brokerage firms and thousands of other businesses across the country. With this new reality in mind, it is safe to say that the tried-and-true practice of cold calling for brokerage clients — never an easy or pleasant task to begin with — is about to get more difficult.

How much cold calling are reps doing these days, anyway? Trends in the financial advisory trade — the pursuit of high-net-worth clients, the emphasis on process over products and the effort to rebuild trust in the industry — would appear to indicate a scaling back of this particular prospecting practice. Yet cold calling persists — although goals surrounding the cold call have changed since its salad days of the late 1970s and early 1980s, when Lehman Brothers employed out-of-work actors to use scripts to pique the interest of the masses. In those days, brokers could pitch and successfully sell investments (such as tax anticipation notes and new issue municipal bonds) over the phone; today, a call is considered a success if conversation is sparked and the recipient is willing to take a follow-up call from the caller — and it's a home run if the broker or assistant was able to get the recipient to agree to come to a dinner/investment seminar.

“Back in the glory days, you could call someone who had never been called [by a single salesman] on anything,” John Brett, a 23-year veteran with Merrill Lynch and now an executive with money manager Lord Abbett. “Now you can't cold call anyone who hasn't been called in the last hour. It was just a different environment in the late 1970s and 1980s.”

Indeed, with public sentiment so strongly aligned against strangers' telephone sales pitches, it's hard to believe salespeople even bother these days, except for one fact: Some of the most successful advisors still swear by cold calling. Not only that: But brokerages still encourage advisors to do it.

Why? “Practice. It's good practice,” Brett says. “You want to have as many investment discussions with as many people as possible.” So important is the practice that Lord Abbett has created a Web-based cold calling and prospecting tool, Lord Abbett Intelligence, to help brokers generate precise marketing lists. The service combs real estate transactions and other publicly available documents, such as SEC filings, to come up with superior prospects. The goal is to “warm up” the call, to identify and learn about high-net-worth prospects.

Cold calling worked well for Brett. In the 15 years he worked as a producer, Brett reckons that he generated 15 percent of his accounts through cold calling. That performance is markedly above the average industry expectations of business derived from cold calling. A recent study by Tiburon Strategic Advisors in Tiburon, Calif., shows the average rep securing only 3 percent of new business from cold calling. Though precise numbers are hard to come by, anecdotal evidence from reps and from organizations like the SIA yields successful cold-call “hit” rates on par with those of direct mail campaigns, in which mid-single-digit positive response rates are considered strong.

“There is a perception that cold calling is a weak marketing strategy, that it's somehow beneath a successful rep, that they've moved past that,” says Chip Roame, managing principle of Tiburon. “But the vast majority of reps are still making cold calls. It can still be a legitimate part of your business.”

Bernie Benson, a Merrill Lynch rep out of Minneapolis who manages more than $850 million of assets, says he executes at least one cold call a day. When he started in the business, many of his calls were blind; these days, they're more focused. “I essentially look for people who have recently come across a lot of money,” Benson says. “Maybe they've sold their business, maybe they've inherited something; basically, it's what I can find in the paper. I try to find a common ground with them, maybe someone I know. If you're going to grow your business, cold calling is essential. If I ever stopped cold calling, I might as well quit.”

Is the Juice Worth the Squeeze?

Not every one agrees with Benson and his ilk. Some industry sales consultants hold that the cold call is a relic of another age. “Firms are certainly de-emphasizing it,” says Matt Oechsli, a consultant with The Oechsli Institute in Greensboro, N.C. (and a Registered Rep. columnist). “People who were brought up in the business with cold calling are finding themselves [considered] dinosaurs. The problem is, cold calling typically is effective when you're selling a product, but firms now are selling a concept. It's tough to do that with a cold call.

“A veteran rep who is out there cold calling is wasting his time,” Oechsli says. “If they're cold calling right now, there's a good chance they don't understand the affluent market: High-net-worth clients don't want sales people handling their finances, and everything about cold calling screams sales.”

This is why the title ‘broker’ is being dropped in favor of the more elegant ‘financial advisor.’ Most work hard to attain designations, keep up with the latest in technology trends, and organize a practice around a meaningful niche in efforts to earn not just a good living but also a good name. Then, they learn that a cornerstone of their success is their ability to hawk services to randomly chosen strangers in the time-honored tradition of door-to-door salesmen and carnival barkers. One euphemism for the cold call, in fact, is “Stage One of client acquisition strategy.”

For many reps, cold calling is “the dregs,” as one put it. “A lot of the time, after I've finished a few phone calls, I almost feel like I need to take a shower.”

Some ‘warming’ tactics (see sidebar) are of a sort that might in fact make a caller yearn for a good cleansing. Certain ploys undoubtedly are unethical, if not illegal. One popular trick? “You know those fish bowls at restaurants where if you put your business card in you can win a free lunch?” asks Stan Grubman, of Corporate Contacts, a cold-call listing service based in Silver Spring, Md. “Well, brokers steal those cards.”

A less unseemly way to increase one's cold-calling odds is to subscribe to professional list manager services like Corporate Contacts or Integrated Systems, a Cherry Hill, N.J.-based concern. Integrated compiles lists of “amenable” phone numbers for numerous industries, including the securities business. Its sources include mortgage papers, credit reports, and census demographics. The company charges around $400 for a basic list of about 3,000 names, says President John Johnson. If a client wants a select group of numbers — say, those in a high-income bracket — it will cost him “pennies more per name.”

The New Deal

For years, firms have been required by the NASD to keep their own internal do-not-call reports. Many brokers, however, say their companies' “scrub” lists are akin more to window dressing than anything else. “We all say we use them, but none of us has really given them much thought,” one Prudential broker says. “Who has time to check every number?”

The new national registry is likely to garner a little more attention from firms, if only because it speaks a language every broker understands: An unsolicited call to someone on the list might result in a fine as high as $11,000 — that's $11,000 per violation.

One Prudential broker suggests that technology — or lack thereof — will prove a serious impediment to effective compliance with the new rules. Many brokers complain of workstations that are not equipped with do-not-call filters; as such, any violations of the list in such environments can only be construed as accidental. Brokers, however, could refer to paper-based listings. In fact, this practice is one that many brokers might soon be required to do come October.

Some firms, particularly wirehouses like Morgan Stanley, are actually ahead of the technology curve. Morgan is known for updating the DNC lists for its workstations on daily basis. “They're pretty good about it,” one Morgan rep confirms. At Smith Barney, sources say that lists are regularly updated through available state lists, and that reps can instantaneously check new leads through the database. If they are going to comply effectively with new regulations, reps say automated solutions must be forthcoming.

For independent advisors and firms that lack in-house resources, companies such as Gryphon Networks, of Norwood, Mass., offer an alternative. The company's technology approaches the do-not-call conundrum from the consumer side. When a consumer joins the federal do-not-call list, Gryphon sets up a block on the phone. If a rep from a subscribing company calls a DNC number, it triggers an automated voice, saying, essentially, “You have reached a number on the do-not-call list.”

This is an attractive solution for brokers because “a caller doesn't have to do anything,” Gryphon Networks CEO Keith Fotta says. “If he calls one of the numbers, we'll block it before it ever has a chance to go through.” Call it unwitting compliance, but Fotta says any firm signed up for his service will have numbers added to the database instantaneously when it receives them in October.

Despite new obstacles and its somewhat uncouth reputation, cold calling remains a fixture across much of the industry — and most industry observers believe this will the case into the foreseeable future. Although practitioners must adapt to a new world of compliance, but most have plenty of practice. “Just dialing up rich people from the ‘rich people list’ isn't going to do it anymore. You're going to have to focus in a little bit more,” Roame says. “But let's not get carried away — we're still talking about five percent, tops, of the American population on a do-not-call list. No one's going to run out of people to call anytime soon.”

Warming Up to Cold Calls

Cold calling is hard, but it does not have to be random. Below are a few ways to warm up a cold-call list. Not all of these methods would qualify a practitioner for the Ethical Employee of the Month award, but each is in open circulation today, and the reps who use them say they can make all the difference.

Know your community

Do you have a street in your neighborhood you know is populated with the well-to-do? Do an Internet search for the homeowners there to get an instant roster of potential clients with whom you have a common bond. When you call them, make sure to let them know you are also a member of the community. The shared background can be the icebreaker you need.

Get one lead, and then let it build upon itself

An underhanded, but effective trick at least one broker swears by: Get the business card of an individual you know to have a high level of assets. Then find the pattern of office phone numbers (212-462-36XX, for example) and call all numbers in the vicinity. This often narrows the range of people you are calling to those with similar positions at the company of your wealthy client. If you cannot seem to lay hands on a business card, the company phone exchanges can usually be divined with a short visit to its Web site.

Ignore those list management businesses

Plenty of companies are making loads of cash putting together lists of contact information for “amenable” prospects and selling them to reps, but few brokers find them helpful. “Those lists are put together by people who know nothing about our business,” one broker says. The lists, complain many, are just poorly refined subsets of very general compilations of phone numbers. These, to quote a movie, are not the Glengarry leads, but rather are “complete crap, and a waste of money,” says another broker.

Take copious notes

Pay attention to every single one of your clients. Any person they mention by name, anyone they even talk about in passing should get recorded somewhere for later use. Even if your client isn't explicitly sending their business your way, you can still call their associates and offer your services. Call it a forced referral. The person you are calling might not know you, but they do know your client. “If you're doing a good job for your existing clients, even if they don't implicitly give you permission to do so, they tend to not mind when you call their associates,” one broker says. “Whatever works.”

Remember: Any “in” you can find with a client who doesn't know you, you must take. The odds are drastically against anything coming from your call in the first place. If you want to be successful, you must do whatever you can to at least pull them a little closer to your favor. At least that's what the brokers interviewed for this piece say.
Will Leitch

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