Financial enabling is a problem that many—if not most—financial advisors often help their clients deal with. It is so widespread that it’s almost always included in money psychologists’ lists of the most serious financial problems that people face. In his book, “Mind over Money: Overcoming Money Disorders that Threaten Our Financial Health,” Brad Klontz, who has a doctorate in psychology as well as a CFP designation, describes financial enabling this way: “Giving money to others whether you can afford it or not; giving when it is not in the other’s long-term best interest; having trouble saying no to requests for money; and even sacrificing one’s own financial well-being for the sake of others. A common example is when parents support adult children who should be able to support themselves.”
While most of the time financial enabling happens with adult children or spouses, in our consulting work, we’ve found it’s also prevalent in small businesses—including advisory firms—between employers and employees. It’s also quite prevalent (as you might imagine) in the large number of advisory firms that are multi-generational businesses, as well as those in which the owner-advisor’s spouse is employed.
Financial enabling of employees in advisory firms (whether they are related to the owner or not) is particularly troublesome in that it usually serves to magnify underlying problems, leading to low morale, high turnover and absenteeism, and greatly suppressed firm profitability and growth.
In our experience, when an employee asks for more money, it’s almost never about the money. In fact, it’s almost always about an issue that either isn’t work-related or isn’t financial at all. Here are the six most common reasons we see employees ask for more money:
1. Living a lifestyle that’s beyond their means. This, of course, is the most pervasive reason behind financial enabling, whether it’s by an employer or a parent. In today’s society, there’s no end to “stuff” for us to buy, and virtually no end to our options to borrow money to get it. Just think of all the things that have become “necessities” within the past 20 years or so: smartphones, computers, travel, private schools and multiple TVs, cars and even homes. At the same time, we seem to have forgotten the importance of self-discipline, creating mega-pressure on people of all ages to live beyond their means. Unfortunately, employees of financial advisory firms and even financial advisors aren’t exempt.
2. Pressure from a spouse about the amount of time they are working. This is also a very common issue, especially among young professionals who are motivated to get to the next level. It’s also pretty obvious, once you see it in print or hear it out loud, that additional compensation isn’t going to solve the problem. Sure, a nice raise might mollify the spouse for a short time, but sooner rather than later, the new money will become part of the couple’s lifestyle, and the work-time issue will still be there. Ultimately, this isn’t an issue that can be solved by anyone other than the couple (who both need to buy into the sacrifices required to become a successful advisor). However, we find that firms can reduce home pressure by doing two things: including spouses and significant others in frequent firm-wide social events (where they can find support from other spouses, including the owner’s) and allowing employees flexibility in their work schedules to help maintain happy home lives.
3. Simply not liking their job. Often employees tell themselves, “If I just got paid more money, I could tolerate it longer.” Again, when you say it out loud, it’s pretty clear that more money isn’t going to solve anything. Instead, without jumping to conclusions, firm owners (or the employee’s manager) should try to get employees to open up about how they feel about their jobs. Sometimes, of course, it’s just a bad fit, but we find more often than not that employees have legitimate concerns about their jobs or working environment that can be quickly solved—but not with more money. Quite often, just the willingness to listen goes a long way toward solving the problem.