In his 2011 article, Return on Relationship: The New Measure of Success, Ted Rubin introduced the concept of the “Return on Relationship” to highlight the value of businesses expanding beyond traditional metrics, like ROI (Return on Investment). Your bread and butter, Rubin argued, is intrinsically connected to the relationships you hold with your clients.
For us at Encasa, we know this to be true. We recognize the value of building positive relationships with our investors. We know that we can achieve better outcomes if we have a strong understanding of our investors’ challenges and goals, and everything in between. That is why we aim to establish and hold trust, promote ongoing communication and achieve mutual growth with our investors.
The benefit of positive relationships, personal or professional, isn’t a new concept, but how exactly does ROR affect ROI, especially within the context of an advisor-investor relationships?
A strong relationship between investor and advisor results in well-rounded financial planning.
Your advisor is more than someone helping you develop an investment portfolio. There is so much more to it than completing trades or account paperwork. Great advisors should aim to understand your organization’s motivations, goals, needs, values, and even ethical needs. This allows them to structure customized recommendations to you as an investor.
Advisors also offer coaching to prepare investors for an undetermined future. For example, your advisor would likely prepare you for various market events so that when they inevitably do occur, you are prepared with a plan to weather the storm. Maintaining communication during times of market volatility are tremendously impactful. When life, or the markets, throws a curveball, your advisor can help your organization evaluate its options and decisions, and how they can affect your long-term investment strategy.
Portfolios based on mutual trust can lead to better outcomes.
Trust is one of the most crucial aspects of investor-advisor relationship. According to a study conducted by the Investor Education Fund, “Two-thirds of investors agree that they rely on their advisor to decide what investments are best for them, and only 1 in 10 actively disagree with that assertion.”
To us, it means being as invested in your goals as you are.
Investors play a large role in this as well. Advisors work with information, and if there are any major changes, it is the organization’s responsibility to advise their advisor if circumstances have changed. Transparency is critical and having open, honest communication can improve the relationship — and most likely your outcomes. By providing advisors greater access to information, you are empowering them to build a specific strategy based on that information, including comfort with risk and the time horizon set to reach each goal.
“An investment in knowledge pays the best interest.” – Benjamin Franklin
Encasa is a proponent of continuous education. We focus on promoting financial literacy through various events with our sector partners (watch here). As an investor, the feedback you share with your advisor is valuable in developing learning and resources materials. We use your feedback to focus on certain topics and concepts when developing educational materials. In fact, we recently completed a survey to gage exactly this to help us position our financial literacy focus.
So, what does this all mean for investors? It’s about creating value that resonates for the long-term. Just like your personal relationships, business relationships take time to develop. They are an investment. And as with anything you invest in, relationships compound over time.