The Power of Adding Compassion to Your Leadership

What You Need to Know

When done correctly, compassionate leadership can optimize team performance.
Leaders, wary of having advisors feel undermined or talked down to, shifted their focus to keeping them happy.
Compassionate leaders have an absence of the kind of judgment that’s been deeply woven into traditional businesses’ cultures that causes stress.

By now we’re all aware of how the pandemic has accelerated technology adoption across the wealth management industry, from Zoom meetings to digital account openings.

Less talked about but arguably more important has been another sweeping change: The rise of compassionate leadership.

The term “compassionate leadership” may strike some as a little new-agey, but when done correctly, the practice optimizes team performance, and therefore business growth. Before we get deeper into this concept, let’s look at the evolution of leadership cultures over the years.

From the 1990s through the first years of the 21st century, leaders of upstart independent advisory firms generally employed a “management” approach.

They set goals for their people and evaluated their performance annually. Based on those evaluations, team members might earn merit-based bonuses; if they fell short, they might be told what was required to earn a bonus the following year. It’s a subjective formula — if you do what I tell you to, you get a reward, and if you fail to do it, well, you get only a portion or nothing.

By the mid-2000s, thankfully, leadership-driven culture had begun to push out the old management approach. By then, independent advisor firms had grown and housed more professional talent, notably licensed, client-facing advisors.

Leaders, wary of having these professionals feel undermined or talked down to, shifted their focus to keeping them happy. They offered additional pay for earning designations, for instance. They delineated career and partnership tracks that allowed them to win when the business won.

Empathy Shift

Within just a few years, the industry’s culture of leadership shifted to one of empathy — the ability to understand and share feelings in a safe environment.

A great deal of research has been published about the importance of empathy in leading people: When leaders show that they understand and care about team members’ feelings, it facilitated happier employees and growth for the business within every growth metric. Yes, every.

Now enters compassionate leadership. In this approach, leaders not only seek to show they understand, but they also are accessible to offer help.

It’s important to understand the key difference between an empathic leader and a compassionate one. A person cannot be a compassionate leader without first being an empathic one. Empathic leaders can understand the problem, and compassion leaders can go one step beyond, with the time to help constructively solve the problem.

Today we are seeing mounting evidence that team members’ wellness — the degree to which their mental, physical, emotional, spiritual and financial needs are being met — is a key driver of success in careers.

It’s all about staying well and functioning optimally during times of stress, which often includes high-growth periods. And compassionate leaders are the best at fostering cultures of wellness and keeping stress levels balanced for high performance.

What does it take to be a compassionate leader? Understanding and empathy are essential, and beyond that, a compassionate leader will position themselves as available and accessible to help.

A few decades ago, leaders liked to say, “Don’t bring me problems, bring me solutions.” A compassionate leader will say “Bring me the problem and/or bring me the solution, whichever you prefer. I have time to hear you and seek to understand you. I have the space to help you and support you in finding the best solution for everyone; two heads are better than one.”

Here’s an example: Let’s say you are a leader who is fantastic at serving your clients and your commitment to doing so has resulted in a large client base and a steady stream of referrals.

But now your hands are increasingly full with servicing clients, and you have less time to work on business solutions. This leaves little time to help the other professionals in your firm solve the challenges they’re facing.

What do you do? Do you tell people you don’t have time?

Compassion Requirement: Self

And that brings us to a key requirement of compassionate leadership: A leader prioritizes their well-being first. It’s well established in psychological research that the energy characteristics of people within an organization shift to mirror those of their leaders.

As sure as night follows day, a stressed leader will soon find that she has a stressed team, and compassionate leader will ensure they are managing their stress first.

What do firms with compassionate leadership look like? One thing that’s striking about compassionate leaders is the absence of the kind of judgment that’s been deeply woven into traditional businesses’ cultures that causes stress.

Team members aren’t judged in terms of whether they are doing a task in the right way or wrong way, whether they’re strong or weak performers, or whether they’re a good fit for the business’s culture.

Judgment within compassionate leadership cultures is different. It is used to determine which solutions are the best for the whole team, not which person is the best.

It’s employed to evaluate and make use of the collective greatest strengths, not to judge individuals’ strengths against their weaknesses. To put it simply, compassionate leaders hire happy people.

This practice tears down the traditional employee evaluations and brings out the best in an organization’s people by making them feel seen, respected and valued, to the point where the leader not only cares about their happiness but will roll up his sleeves to empower a person to find their own happiness.

Now, bringing out happiness in people can be a bit scary. In doing so, it’s possible to build their trust to the point that they leave the firm to pursue plans they’re more passionate about. Most leaders, understandably, don’t like turnover.

Either employees will contribute their unlocked talents to your business, or they will move on, allowing you to hire a person who you’re even happier to work with.

Either way, your compassionate leadership will have created goodwill, and you’ll have remained true to a leadership approach that so far has proven that caring about your well-being shows others how to care about their well-being too.

In turn, when everyone is taking care of themselves, the business wins because there is more time to focus on the business itself.

If there’s anything I’ve learned in 20 years of consulting, it’s that being good to yourself and your people is a no-lose proposition. And being good to people doesn’t need money. Happiness and wellbeing is the key leadership driver that produces the money.