What drives a customer’s perception of value? Harry Nelson, Eventide’s Director of Distribution, shares the findings of Bain & Company study along with our take on what these results mean for Financial Advisors.
I want to introduce you to a study that Bain and Company did called the 30 Elements of Value.1 Now you'll recall that they were the authors of the Net Promoter Score2 (NPS). And we know the net promoter score is a measure of customer delight that encompasses both trust and loyalty. And Bain, who created this NPS score, wanted to determine what was sort of driving the higher scores. Now, we know that this survey is given at the conclusion of customer interactions, so they wanted to find out. Was it just superior customer service that was driving higher NPS scores? And the short answer is no, it wasn't. Now Bain hypothesized that customers buy based on perception of value. Now this value is tied to products and services meeting important human needs. They identified four kinds of needs in a pyramid of importance, providing greater resolution to Maslow's Hierarchy of Needs.
There were functional needs, emotional needs, life changing needs, and social impact needs. So what were the results of Bain's 30 Elements of Value study? They hypothesized that companies that performed well on higher elements of value would have more loyal customers, higher NPS scores, than those that do not. And in fact, this was confirmed. Companies with higher scores and higher elements of value had anywhere between three and 20 times the net promoter score of companies with none. Let's take a look at this Bain's 30 Elements of Value study and where our industry stands today. What we'll see is that financial advisors tend to compete along this functional level of human needs. We offer to reduce effort and avoid hassles for our clients. We want to help them reduce cost through a variety of investment products and services. Ultimately, we want to help them make money and reduce their risk.
A number of financial advisors have done an excellent job of trying to sort of move up this pyramid of value to emotional needs in reducing anxiety for their clients. And they do this by educating clients on some of the behavioral pitfalls of investing, and also just by walking alongside their clients from an emotional standpoint, and setting goals and staying with them long term. Now interestingly, robo-advisors also reduce anxiety on the part of their clients, but they do it in a different way. They do it by educating their clients on modern portfolio theory. And they simply suggest that if you look at the long-term history of the market, while that may have volatility, it's going to go up [it has historically improved over time]. So [modern portfolio theory suggests that] if you just remain invested in the market as a whole, then that'll reduce your anxiety. Now your opportunity is to go higher up this pyramid, and investing that makes the world rejoice can take you there. By practicing this form of investing, your clients may achieve a sense of self-actualization. Now I know that sort of sounds like a fuzzy concept. So let me walk you through it.
It's quite simple. When you woke up this morning, you looked in the mirror and who you saw looking back at you was your current self. Your actual self. And this is the person that you know yourself to be with all your strengths and your weaknesses. But there also lives another person inside of us, and that's our aspirational self. It's the person we hope to become. We hope to potentially become more generous. Maybe we hope to spend time on the things that matter more and spend less time on the things that matter less. You can help your clients become more like this future or aspirational self when you help them gain a sense of wholeness or integrity in their investing where they pull forward their aspirational self into the present. By investing in companies that make the world rejoice, investing in companies that are creating blessing and value for the world and avoiding companies that are causing harm, they may gain a sense of hope. A sense of hope that they are participating in creating a better future for the world.
And then this may ultimately lead to a sense of self transcendence or social impact, which is the highest order need. So we invite you to join us in investing that makes the world rejoice and solidifying your place in a changing industry.
1Source: Eric Almquist, John Senior, and Nicolas Bloch, “The Elements of Value,” Harvard Business Review, September 2016 issue, can be accessed online at https://hbr.org/2016/09/the-elements-of-value (accessed on Feb 16, 2018)
2Source: The Ultimate Question 2.0 by Fred Reichheld, Harvard Business School Press (2011)
This communication is provided for informational purposes only and expresses views of Eventide Asset Management, LLC ("Eventide"), an investment adviser. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. Eventide's values-based approach to investing may not produce desired results and could result in underperformance compared with other investments. Any reference to Eventide’s Business 360 approach is provided for illustrative purposes only and indicates a general framework of guiding principles that inform Eventide’s overall research process. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results.
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4764-NLD-6/18/2019Posted August 2, 2019