Return on Investment vs. Return on Relationship

Return on Investment (or ROI) is traditionally the primary focus of investors. Returns are measured against past performance and future expectations. In Bull markets and thriving economies, clients are easy to please. During market downturns clients quickly become disenchanted with their ROI and, subsequently, their relationship with their primary advisor.

In the typical Retail Practice, clients struggle to understand their return on investment during difficult times. They struggle to see the value your counsel brings to the table when day after day, their account balance grows smaller and smaller. In a Professional Practice, the focus shifts from a singular focus on return on investment. The Professional educates their client to value and appreciate the investment they have made in the relationship with you and your team. The clients of a Professional Practice put the return on time, effort, and energy into this fee-based managed money process. We call this Return on RelationshipTM.

The Return on RelationshipTM Process

You must introduce the Return on RelationshipTM concept early in your client relationship. During the all-important First Conversation profiling process, go through a series of questions to identify client expectations for your relationship:

  • When does the client want to retire? 
  • How much do they need to live on during retirement? 
  • What travel budget do they want to maintain? 
  • Is college funding required? 
  • What is their current budget? 

The answers establish how they want their life to be managed and set the benchmarks against which you can be measured.

On an annual basis, or whenever the relationship is at risk, you can refer back to these questions and record them on a Return on RelationshipTM Worksheet.

Creating the Return on RelationshipTM Worksheet

To begin setting up this worksheet, you create three columns. The first column on the far left lists the client’s key criteria, such as retirement date, age, income, and travel budget: the questions you ask in your profiling process. We use this column to label the data that follows in columns two and three.

In the middle column, write down the benchmarks the client gave in the initial profiling process. For instance, if the client said he wanted to retire at age 65, that number goes in the middle column beside retirement age.

The third column is for current information. As you complete the worksheet, you will say, “Mr. Jones, you initially told us that you wanted to retire at age 65, but currently, you are on target to retire at age 62.” You then write that number in the final column. “And, Mr. Jones, you wanted to retire in 2006, but you can retire in 2003, correct? You wanted to retire with a $100,000 annual income, but you are on track to build a $120,000+ annual income.” 

As you go through the list and review with your client, you continue to write these current values in that third column.

You wanted to have a $10,000 annual travel budget, but we have been able to give you $25,000 annually. You also had a goal to educate your children, which has been done. And you wanted monthly communication from us, which we’ve provided.” On and on, you go through the list, illustrating how the relationship is fulfilling or exceeding their expectations.

Illustrating this return on relationship (ROR) is critical to retaining clients in a challenging market and has significant value. By going through the profile process, asking the questions early in the relationship, then documenting them, you can follow up and use it as a tool for a Return on RelationshipTM analysis.

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