When "The Customer Is Always Right" Is Wrong

By Jon Sanchez, CEO, Sanchez Wealth Management, LLC, Reno, Nev.
When I started my wealth management firm 19 years ago, I wanted to create a one-stop shop with estate planning attorneys, bankruptcy attorneys, real estate brokers, mortgage brokers and CPAs all under one roof. Today, we have eight employees and $128 million in assets under management.

In the early years I followed "the customer is always right" to the letter. However, over time I've learned that telling a client when he's wrong isn't just necessary -- it's good business.

A high-stakes environment
I rely on my employees to make informed decisions about large sums of money everyday. This dynamic means there's always the potential for things to get tense -- quickly. On one side I have clients who are justifiably concerned about their retirement funds or financial legacies. Many of them have achieved a certain degree of success in life and are used to calling the shots. On the other, I have employees who, assuming I've hired the right people, take even the insinuation of negligence, poor judgment or questionable ethics very, very seriously.

Just last week I had a long-standing client call because he was unhappy with the way one of my staff members had treated him. The situation was simple enough: The employee suggested moving the client's money from one custodian to another in order to avoid an annual fee. The problem was that the client wanted a guarantee in writing that there would be no account termination fee when the move happened.

My employee had spoken with a representative from the fund's original custodian, who had assured him that there would be no fee. Unfortunately, according to that company's policy, only the client himself could request a written guarantee. So my employee was trapped: She couldn't do anything other than offer her word to the client, who then deemed it insufficient, which made my employee feel like her credibility was being called into question.

Forewarned is forearmed
I already knew all of this when the client called me, because my employee had come directly to me after it transpired. Rather than having everyone tiptoe around, I try to maintain an atmosphere in which employees feel comfortable and confident enough to approach me immediately when issues arise. My employees know that they'll never be fired for making a mistake -- we all do it. If they cover up a blunder or refuse to admit that they're wrong, then we have a problem. That's not just an ethical issue -- it's the difference between being prepared for a confrontation and stumbling into one blindly.

The CEO as mediator
When I was first starting out, I would have immediately sided with the client out of fear of losing his business. Over the years, I've learned to maintain a neutral position until I've heard both sides of the story and then had time to take a step back. That's especially hard when someone questions one of my employees' ethics -- I feel like it's a reflection on me -- but as CEO, my job is to mediate.

So after listening to the client's side of the story, I had to figure out where things went sideways. It wasn't really about the $135 fee, nor was it about the employee's ethics. What it boiled down to was the simple fact that my staff legally couldn't offer a written guarantee on behalf of another company.

I could have placated the client and apologized for the employee and the firm at that point. What I've learned, though, is that people come to me for guidance and expertise, and I have to be confident enough to deliver it. Think about it: Do you want a doctor who cowers to your every demand? No -- you want an expert who will assert his or her knowledge for your benefit.

Wrong is wrong
In this case, the client was in the wrong, and I let him know that. I also explained why his demands amounted to a challenge of the employee's ethics. As a result, he was able to see the employee's reaction the way I did: as a positive assertion of our company values. The way we handled the situation became just another good reason for him to do business with us.

Business is business -- the only certainties are that communication will break down, and that no one is ever right or wrong 100 percent of the time. As a guiding principle, "the customer is always right" is just as flawed as thinking that your organization is perfect. Trading in absolutes will get you nowhere.

I treat my customers the way I would want to be treated, but I also feel like my employees have my back, so I need to have theirs. If you side with your staff all the time, you'll eventually lose business. Adhere to "the customer is always right" too rigidly, and you'll alienate staff and create fissures in your organization. Treading the line between the two is basically impossible: If you're doing things right, you should really be zigzagging from side to side.

Jon Sanchez lives with his family in Lake Tahoe, California. He enjoys the many outdoor activities that the high Sierras have to offer and serves as a local volunteer fireman.
-- As told to Joseph Conway

Resources

• Learn from other business owners who say the customer isn't always right.
• Read more about managing conflict constructively.
• Find out how to tell people they're wrong without causing a problem.