The Financial Advisor: Leadership Theory for Long-Term Success; From order taker, to salesperson to trusted advisor, planner; a true partner in financial decision making.

Financial advice is the golden opportunity for those seeking a lucrative career; however, the skills needed to grow and maintain a thriving practice requires more than just industry knowledge and people skills. Advisors must understand the leadership theory they exhibit within their business.
The understanding of leadership theory is important for the purposes of creating a long-term success strategy for any business. Financial advisors are business owners, as well as leaders to their clients. Some financial advisors are leaders to other advisors formally or informally as mentors. 
Individuals from all walks of life occasionally need advice from experts. The financial advice industry has not been an exception given its complexity. Those seeking advice from experts hope that their advisor will provide them with good advice; yet, given the leadership position these experts hold in the lives of their clients, it is imperative to understand the leadership style and theories that assist in strengthening the advisor’s business going forward. An individual may go to a doctor when they are ill, an accountant when they need help with taxes and historically a broker would facilitate the purchase of investments. Today the role of financial adviser could mean a broker, a salesperson, financial advisor or (since the 1980’s) a financial planner; yet the job title of financial planner is not yet recognized by the U.S. Bureau of labor statistics. The term planner is often used to describe a holistic method of advice giving while application is open to interpretation. Financial advice has been treated and regulated as a transactional business, while (over the past 4 decades) more and more individuals come to rely on the advice of their advisor long-term indicating a leadership role in their household economic management. 

The US Government first recognized that individuals needed advice around finances in 1862 with the passing of the Morrill Act. The term home economics was coined around the same time for the purpose of defining the need to provide instructions for small farm management as well as private household management. The United States was already moving from an agricultural economy to an industrial economy. Today the US workforce is almost 80% service. The landscape of employment, expenses, land ownership, pensions, insurance, taxes, estate planning all continue to change at such a rapid pace that many individuals require ongoing financial advice, while at a minimum when facing a transition or unexpected financial shift. The pressure is on transactional advisors to be more planning centered. For clients seeking an advisor; identifying experience or skill set may be acceptable when evaluating for a short-term need; however, the advisor's leadership style and theory exhibited must be taken into account if an individual is to understand how the long term relationship will work. Clients are already doing this even though the advisor may be unaware.

Leaders You Can Trust
Trait leadership theory (AKA: Great Man theory), is still used today when determining if a financial advisor has what it takes to hold a leadership title. Some clients may default to an advisor who appears to be a good leader using trait theory. Leadership positions in the financial advising profession seem to go to the candidate who presents qualities such as those well known in trait theory. The bias goes: If they were born into a good family, went to a good school and hold the right degree/ credentials, then they must make a good leader.
Even the CFP Board requires a candidate to have a strong understanding of financial planning principles as well as a bachelor's degree before being granted the ability to use the marks. These rules tend to over favor the white demographic over minority demographics. After trait theory, behavior theory (which is not too different), is used to determine if the candidate exhibits the actions of a successful leader. 
Even before the Covid 19 pandemic it was becoming clear that those who serve individuals or small business clients needed to be more empathetic and planning oriented rather than the typical CFO model used for corporate offices. 
Contingency theory or situational theory would be ideal for examining candidates, and decision makers must work harder to be objective. 
Management theory is often used in place of contingency theory giving the illusion that the decision was made from observing situational leadership while the individual has only ever been evaluated on their transactional performance. CFO positions are often evaluated by metric tracking and forecasting accuracy; however, individuals require personalization with empathy and a deeper understanding of their unique needs.

Having worked in various organizations within the financial services industry there frequently seems to be competing aphorisms: Internally there is a culture of: What have you done for me lately, regarding profits and performance. Externally the team must convey the famous Theodore Roosevelt, who said that people don't care how much you know until they know how much you care. With a goal of sustainable long-term success in a financial advising firm, the advisors and their leaders must lead with authentic leadership. Only with Authenticity at the top, can profits and performance be the long-term side effects of client centered advising. 

Authentic Leadership
Clients improve their financial behaviors as they engage with financial advisors who practice authentic leadership. Optimism and enthusiastic personality traits have been found to be present when authentic leadership styles are displayed; however, some leaders may use over positivity or exaggeration which give the display of authenticity without the core characteristics that make it successful. Employees and clients naturally want to follow a leader who is authentic and engaging leadership can come from authentic leadership which causes the followers to feel connected to the organization through intrinsic values. When advisors practice authenticity, they too can be engaging, causing the clients themselves to feel connected to the organization through values. This has been seen when organizations center their brand around their customers with loyalty programs. Creating a culture that extends beyond the professional relationship must be authentic so that the environment brings connection, thus resulting in deeper levels of enrichment. Authentic functioning is essential for the authentic leader (advisor) and follower (client) as it combines relational truth, unbiased processing, self-awareness and staying true to personal values throughout the authentic behavior. The most effective relationships with leaders and their followers also include empathy which builds trust and connection even further. Decision making can also be done most effectively when both leaders and followers are authentic, offering a space where objectivity and transparency can lead to a deeper understanding of all the facts.

A True Partnership
Clients want to work with an advisor that is more of a partner in the decision-making process. When individuals seek advice from a medical professional, they are more comfortable taking that advice at face value, being more passive; however, financial advisors are seen as more collaborative partners in the decision-making process. 
Financial advisors would be more successful by adopting a coaching approach over a sales model for when they advise their clients. Clients want their advisors to ask questions about their lives and what led them to the point of needing advice. Financial planners as leaders to their clients must communicate authentically and that means being vulnerable to relate to clients on a personal level. Being open about what led to the career as a financial advisor and what struggles have been faced and overcome helps to build the relationship of trust. Since stress heightens poor decision making and can even lead to unethical intent, there is a positive effect for both the advisor and client to build trust and work together.

A Financial Advisor Who Understands Me
The demographics of American wealth are shifting away from the traditional white male. Clients want to work with an advisor who they can relate to. As the financial advising industry struggles to keep up with the changing landscape of clients, the data builds. The U.S. Census Bureau reveals that minorities will be the majority of the population by 2060. Women are only around 24% in 2014. Only 1.5% of Certified Financial Planners are Black or African American.
Those who are taking care of both children and parents face a higher financial burden. Women are the most likely to cut back on income producing activities to provide caregiver services. Studies show that most financial advisors who make investment recommendations to millionaire clients, judge women to be less knowledgeable about investments than men, yet still recommend equally risky portfolios. The white demographic still has considerably more wealth than the minority races; however, advisors who want to help minority families would still be successful according to most standards. 

Advisors who Lead
The world of financial advising has changed dramatically from the old commission models; however, most large firms still stand by the model known as ‘eat what you kill’ commission pay structure. Financial planners who not only practice authentic leadership, but relationship theory style would be positioned to mentor future advisors into the future.

Michal Slate, CFP(R), MBA



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