Financial advisors are often called “relationship managers.” My experience, however, has been that while advisors are fantastic at client service, they aren’t actually doing much to “manage” their relationships.

“Service” describes the act of responding to people’s needs, helping and perhaps pleasing them. When you “manage a relationship” you’re setting goals and managing expectations, setting the rules of engagement and making sure clients understand these rules. Managing a relationship means you’re making it more sustainable, balancing the desires of your client with the practical reality of your business. That means a lot more than just giving them help when they want it. Ultimately, it is about ensuring that the relationship is profitable and successful for your firm as well.

For your advisory practice to be successful, you need to offer both excellent service and sound relationship management. Otherwise, you’ll be overrun by service activities that reduce your firm’s capacity, damage its efficiency and cut into its profitability. By managing, you’re not simply curtailing your client’s demands. You’re ensuring that all his or her requests can be executed with the necessary level of quality, free of mistakes and problems. Good relationship management can also ensure that a firm’s professionals are available and focused on following a service process. If they aren’t, they might otherwise be distracted by small items or less than ready to work with clients.

Some advisors figure that dealing with client problems is like performing triage—dealing with problems in an emergency as they occur. A well-managed relationship goes beyond simple triage.

What It Means

In my experience in practice and observing our many advisory clients, managing a relationship means a number of things:

• It means they must define, communicate with and agree with the client about the goals of the relationship. Within a firm, those goals are usually understood implicitly—they come from its mission and strategic plan. When you’re hammering out the goals with the client, however, the goals will be expressed in a document—a proposal or a contract, for example—and they must be repeatedly re-examined and recommunicated.

• It means setting and managing the expectations of the client. You and the client must agree on what the measures of success are in the relationship. If you’re managing the relationship correctly, you’ll never be in the position of answering uncomfortable questions such as, “Why is the market up 15% while my portfolio is only up 5%?” If market outperformance is the wrong yardstick, the clients should have been educated about that from the beginning; instead, you should have deepened their understanding of the planning and investment process, giving them a different idea about success.

• It means defining the rules of the engagement and the process of working together. Part of your job is to educate the client about the best way to work with the firm—knowing whom to call and when, knowing which professionals play what roles and the nature of the firm itself.

• Certainly, a big part of managing a relationship is determining what requests to tackle and in what order. Some client requests may be urgent. Others can go on the back burner. A good relationship manager will be able to make that determination.

• A good relationship manager will see opportunities to build on the relationship and bring new insights to the client. You should be able to anticipate clients’ needs, see the chances to deepen the connection and offer services they weren’t thinking of.

• You must know the relationship will change. That might even mean changing what you charge a client. Many times, your relationship has to be revisited because you have come to understand the client better. The relationship manager should be able to communicate those changes and convince the client they are reasonable.

• You also have to know when the relationship should end. Good relationship managers know when it’s no longer viable or sustainable and can terminate it in the right manner.

Managing The ‘Delight Levels’

One of the most difficult things to do is find ways to continue “delighting” the client. When your work exceeds clients’ expectations, they rave about you (there’s research to that effect in books such as Raving Fans by Kenneth Blanchard and Sheldon Bowles, who say clients getting service above and beyond what they expect turn into fans and vocal supporters of your firm. Such people are also much more likely to become bonded to you.

But unfortunately, as every married person would attest, it is very difficult to surprise your spouse with a birthday gift after 20 years together. (Unless you give her a pair of cowboy boots.)

Still, even in long-term relationships, you shouldn’t forget how to surprise your partner. The marriage otherwise goes stale or worsens. Familiarity breeds contempt.

Difficult as it may be, it’s the job of the relationship manager to find those opportunities to surprise and thrill. Researchers John Crotts and Vincent Magnini published a paper in 2011 using TripAdvisor data of tourist destinations and found that 94% of the guests in hotel or resort properties who were “positively surprised” were likely to recommend the property to others. In contrast, of those who received “excellent service” but were not “positively surprised,” only 76% recommended the resort to others. Only 36% of those who were merely “satisfied” told others about their experience.

Changing the Deal

Another thing a good relationship manager has to do is know how to talk about the costs of service, including price increases. Anyone who’s changed their pricing can tell you how difficult it is. That’s why some firms are reluctant to do it in the first place.

Economist Arthur Okun suggests in his 1981 book Prices & Quantities that consumers are downright hostile to price increases they see as unfair. A price change the client wasn’t ready for can destroy the goodwill you’ve created with her if you don’t explain it properly.

To test this hypothesis, a team of researchers conducted interviews and surveys with study participants and confronted them with scenarios (for example, “On the eve of a major snowstorm, a local hardware store doubles the price of shovels.”) A 1986 article by Daniel Kahneman, Jack Knetsch and Richard Thaler, “Fairness as a Constraint to Profit Seeking,” found that consumers will accept pricing changes, however, if they see a legitimate explanation for them.

This is where relationship management can be very helpful. Clients accepted those explanations that had to do with economic necessity and their vendor’s own rising costs. Ideally, clients are aware of the general economic mechanisms that determine the economics of the companies they work with and have a sense of how these companies make pricing decisions. Yet fairness, much like beauty, is often in the mind of the observer. The more the firm discusses with clients what those standards of fairness may be, the more it will have room to maneuver in pricing. This cannot be done with a memo from management—it ideally comes from the professional the client knows best.

Understanding The Relationship You Have

Managing a relationship also means constantly improving it and making it deeper. The great David Maister writes in his book The Trusted Advisor about different kinds of business relationships—including those based on service, those based on needs and those based on the interpersonal relationships between the professional and the client. He argues that a trust-based relationship is inoculated against competition, particularly price competition, and is much more likely to grow and be profitable.

A service-based relationship simply delivers something from a menu, such as what you receive at a fast-food restaurant—you order and you receive. Such a relationship is shallow; not a lot of information is exchanged, and the interaction is always vulnerable to competition and especially pricing competition.

A needs-based relationship is one where the client has a problem or challenge that the professional can solve. Think of a sick patient and a doctor. This relationship is deeper and can be evaluated on the success of the solution. Such connections are less vulnerable to competitors coming in and breaking them apart, because the effectiveness of the solution is more important than the cost.

When professionals enjoy an interpersonal relationship with their customers, their knowledge of those people moves beyond business solutions and into personal insight. The advisor can anticipate needs and suggest improvements the clients can make. The relationships are strong, rarely challenged and growing.

When that relationship is taken a step further and based on personal trust, there are no barriers between client and advisor. They each have sincere and deep interest in each other and are able to uncover and explore difficult issues that may be impossible to approach without this trust. In such a relationship, competition is practically irrelevant—unless the trust is somehow destroyed.

We are all often tempted to believe that we have trusted relationships with our clients, but if we look more closely at most firms we will likely find that those clients are at best just having their needs met. It is ultimately the job of a relationship manager to make sure a firm can do better.

Can The Job Be Shared?

There is an inherent tension in the job of the client service manager and the client relationship manager. It almost sounds like a “good cop, bad cop” routine that implies two separate jobs. Firms can often be tempted to split the job in two and have one manager and one service person. I strongly believe, however, that the best relationship manager is the person who actually knows the client best—i.e., the same service person, i.e., the advisor.

Some firms manage their client relationships primarily with policies rather than adapting to different situations, and I think that is a mistake. In those situations, a firm defines what is allowed and not allowed, what is included and not included. The firm governs pricing and engagement terms. The advisors in those cases become “the good cops” who are helpless because they don’t make the decisions about the firm’s overall policies. They feel friction between the desire to please and the need to follow through on their firms’ plans for profitability. The result, though, is a worsening relationship between a client and the firm and often between the firm and the advisor.

Another dysfunctional strategy is to designate “overseers” who help advisors manage the situations that may arise and approve decisions. Larger restaurants take this approach. There is usually a maître d’hôtel who oversees the floor and handles the more unusual requests or customer issues. Again, this leaves the client confused and often frustrated with all involved. It leaves the customer service people equally flustered.

Instead, I believe the answer is giving lead advisors training on managing relationships and making those decisions. After all, they are the people who know the client best and have the most information. Lead advisors can also communicate with the client more effectively and more frequently. When it comes to training clients to work with the firm, no one has a better ability to deliver and revisit that training.

When lead advisors manage clients, it also removes the tension between the firm and the advisor that would otherwise exist. In fact, many wirehouse advisors I have spoken with seek independence because of relationship management decisions that their firm is making that are clearly not driven by compliance. In a way, there is no real independence unless you also have the ability to manage your relationships.

Advisors are also in the best position to manage the relationship toward growth and success, not just the minimization of liability. A good relationship manager will also be able to find those new opportunities.

How We Learn Relationship Management

Relationship management skills are critical for the success of a professional but they are really not part of any university or even professional educational curriculum. Professionals tend to acquire the skills through trial and error. But they often fear the topic and shy away from that type of approach.

The former CEO of Moss Adams, Bob Bunting, said to me once that 70% of the professional skills are learned through practical experience, finding out what works and what doesn’t, and that 20% of the skills are learned from one’s coaches and mentors. Finally, the remaining 10% of skills are acquired from classes and reading. What is important, though, is that the 10% and the 20% can significantly accelerate and improve the acquisition of the 70%.

Careful client relationship management is the cornerstone of a successful practice of any size. Every relationship that a firm initiates changes it a little or a lot. The accumulation of those relationships ultimately changes the nature of the firm. If each relationship is managed well, then the result is a cohesive group of clients who enjoy a sustainable and growing relationship with your firm. 

Philip Palaveev is the CEO of the Ensemble Practice LLC. He’s an industry consultant, author of the books G2: Building the Next Generation and The Ensemble Practice and the lead faculty member for the G2 Institute.