My October column, “Stumbling on Happiness,” generated a lot of chatter on Twitter and in emails, leading me to believe that the problem of owner’s guilt is a lot more prevalent than I thought. Even my own clients who read the column agreed that, although they never thought about it before, they now realize that they suffer from owner’s guilt to the degree that, as one advisor said, “it affects every decision I make.”
The issues relating to owner’s guilt generally fall into two categories: The emails seem to be mostly concerned about how owner’s guilt affects ownership programs for junior advisors, while my clients are more focused on operational problems. In my experience, both issues can create huge problems for owner/advisors and their firms, but can usually be resolved once the problem is identified. As in many things, when we clearly understand the problem, the solution often becomes self-evident.
Let’s start with the ownership issues. As I wrote in my October column, because many advisors feel a fair degree of guilt over their financial success and the relative ease with which it was obtained, they tend to overcompensate by giving their employees whatever they ask for. The problem is that most employees don’t have a very good sense of what they truly want and consequently tend to ask for the wrong things—which often leads to greater unhappiness. A perfect case in point is an ownership stake in the firm.
It’s a fact that most junior advisors believe they want ownership in their advisory firm, but in my experience, what they really want is to feel that they are part of something bigger than themselves and that they play an important role in the firm’s success. What they ask for, though, is ownership and because of owners’ guilt, many owner/advisors comply. In fact, some firm owners feel so guilty about the high value of the firm they’ve built, they feel compelled to sell their junior advisors an equity share of their firm at a deep discount to both its book and market value. Despite the fact that these offers stem from the best of intentions, the result is rarely favorable.
In addition to the tax consequences of selling equity for less than market value (which should be discussed with a tax expert far more knowledgeable than I am), there are myriad problems with this altruistic approach. For starters, junior advisors who have purchased the entire firm from their senior partner often find themselves in a difficult position when a consolidation firm comes along and offers them full market value. While they’d like to comply with the former owner’s intent that the firm remain independent, the prospect of a quick seven-figure payday is often just too enticing.
Even in situations when an owner/advisor sells only a minority interest at a deep discount, problems can arise. You’ve created a reason for the junior advisors to leave the firm and make a windfall when you have to buy them out at fair market value. What’s more, usually in these cases, it’s the firm owner’s intent to create a sense of ownership and responsibility in the junior advisors. Ironically, though, if the young buyers get their ownership stakes too easily, they tend not to value them very highly and don’t appreciate it as much as they should. They don’t feel more connected to the company, and they don’t feel or act like owners. The problem is that they don’t have enough skin in the game to change their behavior, or to feel connected to a greater purpose (which is what they really wanted in the first place). To connect young advisors to their firm, it’s far better to make them earn their ownership stakes by selling them less interest for market value. They’ll appreciate their ownership interest far more and take their ownership role a lot more seriously.
The worst cases of unintended consequences from ownership plans that I’ve seen have come from “options to buy,” in which rather than offering ownership in the firm, an owner/advisor gives his or her junior advisors the option to acquire interest in the firm at some time in the future, often upon the present owner’s retirement. Rather than create the desired “owner’s mentality” in junior advisors, an option to buy only communicates a lack of commitment on the part of the owner/advisor. I equate these offers with a guy who’s been dating a woman for some years, sitting her down, looking deeply into her eyes and saying, “I think it’s about time we got serious about our relationship, so let’s move in together.”
You’ll get about the same reaction from your junior advisors. Rather than seeing the offer of an option to buy as a positive thing, they tend to view it as a slap in the face. Against my recommendation, one of my clients just met with his young advisors to tell them about the options to buy he was giving them. They laughed. If your advisors deserve ownership in the firm, just give it to them. Anything else will be seen for exactly what it is—a lack of commitment.
Then there’s the operational side of owner’s guilt. Time and again, I’ve seen advisors unable to keep themselves from “tinkering” with firms that we’ve taken years to get running like a clock: micromanaging, changing tech systems, altering service models that get great client reviews or diving back into situations that we spent years getting them out of. Other advisors arbitrarily change systems and communications that their clients have come to expect—setting up random client meetings and sending out unnecessary communications, so that the clients start to think something’s wrong—all because the owners make too much money, work too few hours and feel they should be doing more. I also suspect that some advisors simply get bored with their firms when they run too smoothly.
As frustrating as those quirky behaviors can be to a firm’s employees (and to its consultant), there’s also a much darker side to owner’s guilt. Faced with growing revenues and cash reserves, owner/advisors sometimes feel the need to spend on behalf of their employees and their firm: moving into bigger, nicer offices, buying new office furniture when the old furniture was fine, and making investments in people and technology that don’t make any logical sense. I’ve even seen this type of behavior by advisors who were formerly very conservative and thorough in their planning and goal setting.
Don’t get me wrong: I firmly believe in sharing the wealth. However, there is such a thing as overkill, particularly when spending becomes compulsive and morphs into chronic overspending, which can lead to a downward financial spiral. In fact, I suspect this path has led to some of the recent cases of advisor fraud we’ve all been horrified to read about. It starts with feeling guilty about success, which can lead to spending on things you don’t need, then morphs into overspending, which compounds into guilt and creates a fear that there is never going to be enough to pay for it all. Before you know it, you’ve crossed the line from being a successful person to tinkering with the books to cover it all up.
Of course, owner’s guilt rarely leads to such dire consequences. Still, if left unchecked, guilt over your success can affect the firm, reduce the quality of client service, impact employees and make it virtually impossible to enjoy what you’ve worked so hard and so long to build. I believe the antidote to owner’s guilt lies in two simple steps that all my most successful client firms use. First, acknowledge that your firm exists for the greater good: helping people successfully manage their finances so they can send their kids to college and enjoy a happy, independent retirement. Then, share your greater purpose and your financial success with your employees. When everybody wins, nobody loses—so what’s there to feel guilty about?