Four ways to develop and retain relationship capital

When we work with our affiliated advisors on their financial advisory practices, our Practice Management consultants often have discussions about the financial metrics of their firms, such as operating or investing capital. Increasingly, we are having conversations about relationship capital. Seldom do advisors want to discuss the quality of their relationships with clients and centers of influence (COIs), but we are finding that those conversations can be game-changers.

The Covid-19 pandemic significantly altered how we do business. Pre-Covid, if clients didn’t hear from their advisor for months, it wasn’t worrisome since they could catch up with the advisor at a quarterly review meeting or attend a client appreciation event. But post-Covid, the twin factors of an extended physical absence from our clients’ day-to-day lives, combined with the increased preference for working virtually, has put many client relationships in a tenuous position. So your relationship capital is more important than ever to develop — and retain.

But what exactly is relationship capital? It’s the value advisors create by building and maintaining close relationships over time. It’s the belief that your client relationships are at the core of your success, not ancillary to it. You may be familiar with the concepts of intellectual and human capital; we think that focusing on relationship capital is equally important. Like any capital, there are real returns that can be measured and affect the bottom line. According to Morningstar research, 21 percent of clients fired their financial advisor due solely to the quality of the relationship, so it’s safe to say that relationship capital is a metric worth noting.

Here are two ways to build relationship capital with your clients:

• Send communication that matters. When you send out portfolio reviews or tax documents, that’s expected. What moves the dial in relationship capital is the unexpected touches that surprise and delight clients. It doesn’t have to be big or expensive, just thoughtful. For example, there was a rare aurora borealis that took place in the Northeast a few months ago, and an advisor took photos from her home in Maine to share with clients. The response was tremendous and spurred many positive conversations, including clients sharing the photos they took with the advisor—who now uses the clients’ photos to create personal notecards for them.

• Leverage client events. Few advisors still hold quarterly reviews with their clients, but more of them are starting to host client events again. Cultivating a relationship outside of an office setting is a great way to learn more about clients and build rapport. Think small gatherings rather than large summer outings — the goal is to spend quality time with people and move the relationship forward. Research shows that advisors who socialize with clients outside of the office gain more referrals than those who keep the relationship strictly in the office.

Below are two ways to maximize your relationship capital to achieve success:

• Think long term. We suggest advisors change their mindset from thinking about quarterly or annual fees to considering the lifetime value of a client (and the next generation of clients, too). A discussion about long-term investing with a time frame of 30 years would be quite different from a standard discussion. By putting the client’s best interest at heart, you help build enduring trust and loyalty. And the longer you retain a client, the more profitable the relationship.

• Ask for referrals and introductions. Many industries have barriers to entry that cost them time, money, and energy to acquire new clients. The financial services industry is fortunate in that loyal clients are often quick to refer their advisors, costing the advisors nothing to gain leads. Referrals from friends, family, and COIs are the best ways to grow a practice organically. And whenever possible, ask for an introduction instead of a referral. You’ll meet the prospect quicker when you’re personally introduced and benefit from the halo effect of your current client introducing you.

Building and retaining your relationship capital is a must for every advisor, and leveraging it is the key to growth. To do this, it’s essential for you to continually assess the quality of these client relationships and maintain them. By paying careful attention to what’s important to your clients, you can position yourself for long-term success.