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The 'Shocking' Secret to Building Client Loyalty

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“Are you thinking about all the ways to jam a profitable product down somebody’s throat, or are you thinking, ‘I wouldn’t do that to a loved one. I’m going to act in the client’s best interest’?”

Fred Reichheld, Bain & Co. Fellow and senior advisory partner, poses that question to financial professionals in a recent interview with ThinkAdvisor.

Clearly the latter focus is the right answer, especially if an advisor wants to build client loyalty for the long run, says Reichheld, whom The Economist has dubbed “the high priest of loyalty.”

With Bain since 1977, he founded the firm’s loyalty practice and created its famed Net Promoter System, which measures and manages customer loyalty.

Clients include Amazon, Apple, Fidelity, Mercedes Benz and Schwab, among several thousand more.

Linking customer loyalty and profits, Net Promoter scores are predictive of a company’s growth. Those with “superior NPS consistently deliver high returns to shareholders,” according to Bain, which is headquartered in Boston.

A bestselling author, Reichheld has just released a new book, “Winning on Purpose: The Unbeatable Strategy of Loving Customers,” written with Darci Darnell and Maureen Burns (Harvard Business Review Press-Dec. 7, 2021).

In the interview, he maintains that today’s challenging environment dominated by the coronavirus pandemic presents an opportunity for financial advisors to “really do something loving, kind and thoughtful in acting in the customer’s best interest that’s going to pay off for many years going forward.”

Those advisors who recognize how “vulnerable and confused” their clients feel will see “remarkable increases in loyalty,” he says.

The Golden Rule is the crux of the Net Promoter System, which pivots on the idea that “when you touch a life, you can either enrich it or diminish it,” Reichheld explains.

“The best organizations consider enriching customers’ lives their primary purpose,” he adds.

In our conversation, he discusses the one key question to ask clients that will reveal their customer experience and determine their Net Promoter Score, which is indicative of their intent to refer friends and relatives.

ThinkAdvisor conducted a phone interview with Reichheld, who was speaking from Cape Cod.

He describes how loyalty serves to protect advisors from losing clients to aggressive competitors and offered advice about loyalty to younger financial planners just starting out:

“Selling stuff,” he declares, “is not what this is about.”

Here are highlights of our interview:  

THINKADVISOR: Is today’s difficult environment — pandemic, market volatility and other issues — a time for advisors to pay more attention to nurturing client loyalty?

FRED REICHHELD: This is a time for remarkable increases in loyalty to financial advisors and planners who recognize how vulnerable and confused their clients feel. 

If [FAs] use this as an opportunity to really do something loving, kind and thoughtful in acting in the customer’s best interest, clients will remember that, and it’s going to pay off for many years going forward.

How does a company chiefly build loyalty?

The best organizations, including financial organizations, build loyalty by making it clear that they’re going to act in their customer’s best interest. 

They consider enriching customers’ lives their primary purpose.

The companies that make it clear through their actions that enriching the owners — themselves or their investors — is their primary purpose are failing.

About 20 years ago, you invented the Net Promoter System, which measures client experience and loyalty. Is the golden rule the system’s underlying idea?

Yes, and it works. It’s shocking to some people that in a commission-driven world, if you treat people the way you want a loved one treated, good things happen and people come back for more. 

They bring their friends. They give you good ideas. They help you succeed. That’s how great business people build wonderful successes that are sustainable.

Does the system pivot on the question, “How likely is it that you would recommend [company] to a friend or colleague?” 

It pivots on the idea that when you touch a life, you either enrich it or diminish it. In most businesses, you can get a very good signal of whether a customer feels you’ve enriched their life by asking them [that question].

But it has to be done in an honest way and a comfortable way with no gaming or manipulation.

If done correctly, it’s a very good indicator of where you stand.

Is there a strong connection between loyalty and profit?

Way back when I invented the system [more than 20 years ago], I showed that customers who were promoters — the ones who were coming back for more and referring their friends — could be identified by asking them that one question.

Those customers are far more profitable. They generate profitable growth. 

We have the data: Only companies with high Net Promoter scores are the ones that are consistently delivering total shareholder return above a Vanguard Index fund.

As an investor in such companies, how have you fared?

I invest in the companies with the highest Promoter scores, and my track record over the last decade has tripled a Vanguard Index.

I tripled the stock market performance by investing in companies that really demonstrate love for their customers.

I think financial planners and analysts [reading this interview] will love [the system] as a way to beat the market and to talk to their clients about which companies they should be investing in.

More on this topic

Does the advisor need to proactively ask the client that key question?

No. I think the best advisors are having a third party do it for them so they’re more likely to get an honest answer.

Or the advisor can [ask] the client in a way that makes it clear that this isn’t a game. 

They don’t just ask them to score [on a scale]; they ask one or two follow-up questions like, “Tell me a little bit about why you feel that way? What could I do to make your experience even better?” 

They can do that in text or voice-record their answers or put them on video. It captures all the emotion. 

That’s just a goldmine for people who really [are concerned with] taking care of their customers and making them happy.

Nowadays, there are a number of younger financial planners starting out who are seeking clients and wanting to retain existing ones. What’s your advice to them regarding loyalty?

Focus a little bit less on selling something and a little bit more on making the customer a Promoter because if they really are impressed by you and how you can make their life better, they’ll be a long-term asset to you.

Of course you have to sell enough to put food on the table, but selling stuff is not what this is about. 

Making your customers happier and better off is what this should be about.

How long does a client have to be a client for an advisor to ask them that key question about recommending the company?

I’ll answer that this way: The owner of California Closets — a commission-driven custom closet- design shop — was concerned that when customers didn’t buy right away, some salespeople would just pretend they didn’t exist.

So the company started sending surveys to people who came in but chose not to buy at that time. 

It turned out that some people, if they were treated right, were going to come back in the future and buy. And even if they didn’t, they were going to talk to their friends and relatives about the company. 

Some of the salespeople were just brilliant — getting Net Promoter scores in the 70s, whereas other salespeople were getting negative Net Promoter scores because they were using the classic “This guy’s not a good lead. I’ll ignore him. I’ll just ditch him.” 

What’s the upshot to that?

It comes back to bite you because those people never turn into customers, and they’ll tell their friends and relatives, “What a jerk this guy is [at that company] — don’t do business with him.”

Many financial advisors limit their meetings with clients to, say, twice a year. Otherwise, the clients have little, if any, access to them. How can such lack of communication build loyalty?

That’s probably not a good model. Some industries are even worse, like the life insurance business. You never hear from them once you’ve bought your policy. 

It’s like crickets [silence] for years on end. That’s no way to build good relationships.

Financial planners, brokers and analysts need to find ways to reach out, communicate and provide information of value to their clients on a pretty regular basis.

What about competition that tries to take away an advisor’s clients? Does client loyalty provide insulation? 

Absolutely. It’s really tough to win a customer away from somebody if they’re Promoters scoring 10 and recommending their friends. 

They won’t run away unless there’s a disaster.

[Using] the Net Promoter system of building client loyalty the right way and building golden rule behavior into your business system [works].

In these confusing, if not chaotic times, what else can advisors do to promote client loyalty?

Think about where you’re putting your innovative ideas and focus. 

Are you thinking about all the ways to jam a profitable product down somebody’s throat, or are you thinking: “I wouldn’t do that to a loved one. I’m going to act in the customer’s their best interest. 

“I’m going to sell what’s good for them with the expectation that if they [realize] that, they’ll come back for more and give me all their business and bring me their friends.”

Even though that’s a longer-term game to play, in the end it’s the only winning game.

Is doing special favors for clients a way to build loyalty?

There are all sorts of low-cost things to do that can really help customers lead better lives.

One of the best ways to earn loyalty is to do favors for clients’ children or people who are vulnerable and need help.

Or you can help [educate] clients’ kids by teaching them the right way to think about finance.

What do you think of The Economist’s naming you “The High Priest of Loyalty”?

I’ve made some good jokes with that one. My assistant photo-shopped my face underneath the miter [headdress] that the Archbishop of Canterbury, I believe, was wearing in a picture. So it looks like it’s a photo of me. 

I’ll often use that in giving presentations to get a laugh! 

(Photo: Evan Scales)