“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.