Relationship Capital: an Advice Practice’s Most Valuable Balance Sheet Asset

Industry elder, Adjunct Professor and Chairman of Mentor Education, Jim Taggart, OAM, UND, talks to his peers in this article about what he considers to be the most valuable (and under-rated) balance sheet asset an adviser can possess – their ‘Relationship Capital’…

When we think of business capital, it is done in financial terms, for without this asset it is impossible for an advice focussed enterprise to operate or grow.

Mentor Education argues that ‘relationship capital’ is equally vital. In fact it is the foundation for developing new markets (and clients) – and a quick glance at the financial statements will reveal how much of this asset a business has.

Business isn’t a spectator sport and how well you develop and nurture relationship capital will define and play a major role in its financial success…or failure.

Building relationship capital

Developing strong relationship capital is a business strategy that’s often overlooked and even approached in a superficial or tokenistic manner.

It’s the relationship capital of your people that combine to become the reputational capital of your business.

But the effort put into building good relationship capital is one of the most cost effective strategies with potential to deliver extraordinary outcomes.

It takes thought, practice, and the right attitude to get it right with the key focus being trust, sincerity, honesty, integrity and dependability – that when combined create the business culture, and in turn the reputation capital.

The practice principal and key personnel of an advice business build culture over time, as a result of their daily activities and interactions. It’s the relationship capital of your people that combine to become the reputational capital of your business.

When people think of ‘networking’, they often do so through a very narrow prism of networking events, adding contacts to a database, having meetings, etc.

In order to build relationship and reputational capital, a broader view is required.

With every P2P interaction – client, employee, the local café cashier – you’re engaging with people in your network and the manner in which you speak and engage with each and every one is either contributing to or deducting from, your relationship capital.

Therefore, choose words, topics, and your thoughts carefully.

How many interactions have we all experienced with people that were lazy, argumentative or patronising in the way they sought or articulated information?  Those people are undermining their personal and commercial capital, one careless and thoughtless interaction at a time.

We are all brokers of information, and the quality of the information is determined by us, and how well we deliver it.

Networking and engaging with other people is something that deserves more thought and preparation than many people give it. To be successful and effective it must be strategic and tactical in its application and purpose.

Think about how you network and the effort you put into it.  Do you contact the event organiser beforehand and request a list of attendees? If not, why not?  If you are taking the time to go to an event, maximise that time by deciding ahead of time who you would most like to speak with.

Have you contacted any networking organisations to find out more about them or how you could get involved?  Are there volunteer opportunities, potential to donate items for prize draws?  Are there opportunities to speak at or host future events, or perhaps to contribute an article to an organisation’s blog or member magazine?

If you’re going to put time into networking, you must also put in the effort required to maximise the opportunities and outcomes.

Time isn’t money – relationships are money

Reflect on those significant client win successes: was it related to the number of hours worked each week on the proposal, or was it the rapport and depth of relationship and trust developed with the client?

Developing relationships demands a significant time investment, but it’s the quality of the relationships – and the amount of relationship capital developed – that you’ll be able to take to the bank!

The extent to which positive, trusting and solid relationships are built will ultimately be reflected in the balance sheet.

Remember, people can open doors for you, but you must walk through them to find the opportunity. No matter how many networking events you attend, only you can build relationships with the people you meet.

Creating an impression – who are you?

When you attend any event, like it or not, your actions, appearance, and communication, both verbal and non-verbal, will give others an impression of you.

Are you conscious of the impression you create?

How do you conduct yourself at an event? Do you arrive late and leave early, or plan well so that you can stay, enjoy and immerse yourself in the event?

How do you go about obtaining information from others? Do you structure your questions to obtain quality information, or do you ask generic questions that may give the impression you’re being polite rather than genuinely interested?

The quality of information you gather will depend on the quality of your questions.

When you’re interested in finding out more from someone you speak to, do you leave them with a card? Do you talk about your card to them, for example, your address, or a qualification it mentions? Do you ask for their card?

Importantly, do you set clear expectations about getting in contact with them to find out more? And do you follow up and do what you’ve said you would do?

When you’ve prepared well for the event, it’s easier to have the type of quality conversations that progress a relationship.

As a financial adviser, I used to spend a lot of time looking at various company websites to get an understanding of what they did, so that I could talk to their representatives at the event.  It’s those small things that make a big difference to the quality and depth of your conversations.

Are you a giver or a taker?

Are you the person people gravitate towards at events or the person they avoid? Reflect very seriously on the quality of your interactions at events, and on how others may see you.

Far too often people at networking events immediately go into their spiel and pitch on handing over the business card. In doing so, they are deducting from their relationship capital and ultimately wasting their time and squandering the commercial potential such events have to offer.

it’s important to understand the opportunity cost to you of not networking well

The cost of not getting it right

Some might say that it’s difficult to measure the success of networking and building relationship capital. I would argue that measuring your success in these areas is as easy as looking at the financial statements of your advice practice.

It takes time to develop good relationship capital, but it’s important to understand the opportunity cost to you of not networking well and failing to develop that capital.

Relationship capital grows into reputation capital for your advice business over time. If you view this type of capital as an asset, you’ll see the sense in growing and protecting it. And as it starts to increase, you’ll see a corresponding increase in opportunities, and in your financial statements.

If you’re a reluctant networker, let me leave you with these two quotes:

“Life isn’t about finding yourself. Life is about creating yourself.” (George Bernard Shaw)

“Death is not the greatest loss in life. The greatest loss is what dies inside us while we live.” (Norman Cousins)

Issued by Mentor Education RTO 21683:

Mentor Education is delighted to have Adjunct Professor Dr. Jim Taggart OMA as the Chairman and independent director of the Mentor Board, past president of the Association of Financial Advisers, and who sits on the board of TAFE NSW.

Jim Taggart has over 20 years of board level experience across the public (local & state), private (finance planning, investment, development) and not for profit (church, community & fundraising) sectors. At board level, highlights include being a member of the Asia Pacific Financial Services Association, Investment Board for the Parramatta Diocese; (Chairman) Salvation Army Advisory Board (Business Appeal); Audit Committee Member, Hills Shire Council; Parramatta Stadium and TAFE NSW Western Sydney Institute.

In an executive capacity, Jim established the highly successful Taggart Group in 1987 and is currently Director, Western Sydney Institute of Sport. Jim has a Doctorate of Business Administration (DBA) and is also a recipient of the Medal of the Order of Australia (OAM) and won the Association of Financial Advisers, Financial Advisor of the Year Award in 2005.

  • Daryl La’ Brooy

    What a great article! Well done for publishing it Peter.

  • I don’t have any problems switching to level commissions which in most cases is the better option when the first year payment drops below 80%.

    Is there any adviser who does risk insurance for mums and dads and works on a fee-for-service model and how do they do it, if they are ready to share?

    • Squeaky_1

      I very much doubt it Christoph. I’m risk-only and have only ever worked on brokerage (or commission as the legislators insist we call it). I have surveyed clients and modelled fee for service with clients many times over the years and I’m here right now to say it simply will not work for mums & dads & young people in Australia. Let me emphasise this as it is important – it does NOT work and it will NOT work. You have everyone from Chris Unwin to Mark Rando suggesting it will but I can assure you it will not. I’ve called for details on how the various gurus and ‘special industry consultants’ think it should be done but all I get is crickets. There is NO WAY to do it that works. I challenge anyone to show us in open forum exactly how ‘they’ do it. Nothing is ever as it seems. I’ve put much effort into it, tried it and it NEVER gets off the ground. $5K premiums to start a risk plan for a family . . . they simply will NOT cop a $2K or $3+ fee on top – just for insurance and associated advice. They expect it it is paid by commissions – because it always has been. Brokerage (oh, ok, commissions) works and works well. It truly ‘ain’t broke’ so it needs no fixing. Typical of politicians to try though – AND to break it while they try – AND to walk away and leave it broken. Look around . . . .
      These self interested entities, life companies and politicians and misc special interest groups, WILL ruin our industry – it is well underway and no stopping it. Life companies want advisers OUT ASAP. Too expensive you see! I’ll be out by 2022 as I’m told by idiot academics I won’t know enough at that point to keep protecting my clients as I have for decades unless I spend $10K and much time away from family and clients learning new stuff.
      Insurance hasn’t changed that much and won’t before then so it will be a complete waste of a risk adviser’s time – especially an older one like me (56). A uni degree is a laughable requirement just to continue to help people with income protection, trauma and death cover as I have for over 30 years! Well, it ‘would be laughable’ if it wasn’t so sad for our once great industry. There’ll be nothing and no one but robo-advice and order-takers by 2025 if this lunacy continues. All the experience risk advisers will be out (one way or another!) and the poor new risk recruits will never reach greatness as they’ll be able to afford only to take orders and tick boxes for advice and compliance. As always, the final and most important ones to suffer will be the clients. So much for life companies and legislators bleating about ‘client best interest. They wouldn’t have a clue what that means in the real world outside their executive offices and in the homes of ordinary Australians. They should all be grossly ashamed of themselves for creating this sick debacle.

      • Thank you for the update re your fee for service experience. Mine has been quite similar. I checked the Uni degree requirements and they may not be quite as bad as a full degree. If the FPA proposal gets up, an adviser with an advanced diploma and 7+ years of experience needs a graduate diploma in financial planning – that is still quite a lot, the equivalent of 6 months full-time work as it is two semesters and each semester lasts for three months but it is not a 3-year degree. BTW I am 58 and finished a Masters two years ago – it was work but I actually managed.

        • Squeaky_1

          Very interesting Christoph, I didn’t know that. Seems I will indeed be leaving sometime south of 2022. A shame really as I do enjoy dealing with my precious clients and making sure they are protected. You know, none of the industry gurus or legislators have yet explained why a simple risk adviser needs these time-wasting, money wasting superfluous qualifications just to help clients with IP, trauma and death cover. I wonder if anyone ever will? All the very best to you Christoph.