Chris Davies: The power of relationship capital
The failure of Towry’s court case against Raymond James and the seven former Edward Jones advisers highlights the key importance of trusted client relationships in any business environment.
The real value in any advisory firm is the strength of relationship capital and associated trust between adviser and their clients.
In dismissing the claim, The Honourable Mrs Justice Cox remarked it was evident Towry had no appreciation of, and paid scant regard to, the strength of the relationship between the client and their adviser.
This for me highlights one of the core problems with the run up to the RDR, where too many industry consultancies are focused on financial capital only, particularly when it comes to segmentation of client banks.
Baby and bathwater springs to mind if you are cutting off valuable client bank DNA that may not initially be bearing fruit but at some stage down the line will offer real return.
Relationship capital in business terms may be looked at as ’good will’ and certainly solicitors and accountants use this term frequently. On an individual basis, the relationship capital can be with a professional and their client, the value will be higher where other individuals also have strong relations with the professional and the client, or people who influence the buyer. This is shown graphically below:
As David Lambert co-author of ’Smarter Selling’ writes; “Of course, relationship capital is higher where relationships are with people who have power, influence, or both. Influence is often typically associated with power and we tend to be naturally attracted to power – which often attaches to job titles. Where sometimes mistakes are made is where the influence of someone with a less impressive title is overlooked.”
So what does this mean, particularly when we are searching for loyal client strategies? Well if anyone has heard of the power of business joint ventures or partnerships will tell you, high quality relationship capital will leverage your return hugely in efforts placed with the right people with the right relationship capital.
In business terms this means seeking out those who can help your cause, relationships that offer a truly reciprocal nature. Where client relationships are concerned, knowing what your clients need, who they know and trust and how they interact within their field adds to the relationship capital.
Understanding client relationships (ad-hoc, social, technical or partnership) and clients financial capabilities to act upon advice and services offered can generate high relationship capital. Services maybe tailored to meet clients’ needs and make them feel appreciated. Without this then a transactional relationship exists, one that falters when it comes to added value and true understanding of the business worth.
So with the Tisa distribution advisory council now expected to begin work on how restricted covenants apply and the associated vested interests, there needs to be a consensus in the industry that avoids litigious action where possible and recognises the fact that the relationship between adviser and client is where high value lies and nurture and reward this accordingly.
Chris Davies is a former IFA and director of Engage Partnership