By Adam Price, Founder VouchedFor & Hatch.
I’m now founding my second “fintech" business. And despite my passion for sound financial advice - I’ve not always given it to the team here.
Here are some common mistakes founders make in (not) giving financial advice to their teams.
1. Over or under-egging stock options
You want to do justice to the potential upside. But you don’t want the team to overly rely on them. So you get the worst of both worlds. You under-egg or under-quantify the potential. Without helping them plan for the different scenarios at a personal level.
2. Wrong life and critical illness insurance
We don’t offer life insurance. Other firms offer 3X or 4X salary. No workplace policy is adequate.
One day, if not already, you’ll lose someone. Happened to us already. I never guessed at 23 they'd need life assurance. But I never asked. Turns out, they had a big desire to provide for others in their life.
With the older guys - and now everyone - I’m often vocal about the importance of insurance. There’s no blanket right amount - not 3X nor 4X. For some it’s 10X, others zero. And, if they leave you, they lose the protection. Far more important to educate, than dish out 3X to everyone.
3. Inadequate property ladder empathy
OK - you know you had it easy, getting on the ladder years ago. You know many of the team now have it tough. But can you really empathise with them? A prolonged sense of hopelessness and unclear direction? Rent forever? Move away? Sell your soul in the City?
Even those who can afford to buy are often unsure whether to. In years gone past, it wasn't too scary to buy, knowing you could then rent or sell if you needed to move 3 years later. But now, with higher prices and stamp duty, the stakes are so much higher.
There's no easy answer and you can't give blanket advice. What your team really need is to work through all options diligently, with someone knowledgeable.
4. Screwing your team (or fearing you are)
The fear probably out-strips the reality. But I’m sure the fear’s there - now or in the past. You’re under-paying until you have traction / scale / profit / funds. Your team are betting their futures on you. What impact is this having - on their bank balances and their future plans and career prospects? Even if you’ve had an open chat - are they comfortable fully opening up - and are you giving the best advice?
5. Undermining the power of pensions
You’ve not offered pensions - until the government told you to - and now you’re doing 1%. If they want that kind of security, they should join a corporate, right? This place is about the upside. I don’t disagree.
But - have you explained the importance of retirement planning? And the tax efficiencies of pensions? And why it’s a good idea for them to privately put money into one - now or later?
Or are you unwittingly denying them the same knowledge their friends’ blue chip employers are giving them?
6. Vocal entrenched views on investing
You’re a founder. You have strong views. And you influence well. Whether you believe in renting or buying, stock markets or buy-to-let, you’ve no doubt shared your view with your team, with your typically high conviction. But are those choices right for everyone? And how do they now feel having had their ideas raked over without individual consideration?
7. Going in blind yourself, then not sharing the mistake with your proteges
Did you know you could offset your startup losses against your past years’ income tax? Most founders don’t. And did you know you won’t get a mortgage until you’ve been profitable for 2 years - so maybe 5-10 years’ time if you’re taking the high-investment route?
And if not….you presumably didn’t also tell the protege who you encouraged to start their own business?
What to do
I hope I haven't been too damning. Many of these mistakes I've made myself, I'm sure you've not made all of them, and I've probably missed some others. Please do add your thoughts below.
I hope you agree that we have a duty to seek out reliable financial advice for our teams.
If we don't, who will? Will all of your team seek help? Can all financial advisers be trusted? Are government websites adequate?
I'd be happy to chat through some easy steps. It might be my businesses can help. Or, it might be they can't. Either way, I'm happy to share my two pennies. Just email me.
Adam Price, Founder
VouchedFor (UK's leading review site for IFAs, Solicitors & Accountants)
Hatch (brilliant financial planning, available to all)