Advisors: Transactional or Transformational

Leaders tend to fall somewhere on the “transactional-transformational leadership” spectrum. A transactional leader typically uses the exchange of rewards for performance and focuses on keeping everyone in line in order to meet his and the organization’s goals.

The transformational leader, on the other hand, focuses on the intrinsic needs of team members, motivating performance by ensuring the interests and goals of the team members and the organization are aligned. The transformational leaders I’ve worked with believe that their job is to help you do your job better, coaching you in a way that allows you to succeed in helping the mission, even if that eventually leads you to leave the organization. Transformational leaders are confident and rare.

This distinction in leadership style and approach can be applied to financial advisory services. When my friends or colleagues ask who I would recommend as a financial advisor, I point them to professionals that I know will want them to succeed financially and personally, even if that means progressing beyond the advisor’s capacity to provide them service in the future. These advisors help their clients see the bigger picture, focus on ways to provide holistic planning, and dive into areas that traditional financial services might be unequipped to tackle–including financial therapy and counseling. I caution them against working with someone who focuses on selling investment products and simply checking boxes for budgeting and planning, noting to my friends that they can easily do those tasks on their own with the myriad of technological solutions available today.

In the financial services industry, the move toward global implementation of the “fiduciary duty” standard is attempting to mandate a transformational-leadership style as opposed to a transactional one. It will soon affect 401(k) and IRA investment management on a broader scale. Understanding the distinction between the transactional and transformational leadership approach can be a useful way of evaluating potential advisors and firms, and ultimately determining which professionals you want to work with.



Bass, B. M. (1999). Two decades of research and development in transformational leadership. European journal of work and organizational psychology, 8(1), 9-32.

Judge, T. A., & Piccolo, R. F. (2004). Transformational and transactional leadership: a meta-analytic test of their relative validity. Journal of applied psychology, 89(5), 755.

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