Planning for Disruption Why Do We Have Financial Planners? To Plan For The Future

A friend shared with me a brief five-minute clip of Simon Sinek’s Zoom meeting with his team last week. Simon is an author and motivational speaker, and in this video he discusses that he and his team will have to radically change the way they each do their individual jobs in addition to the company changing its strategy going forward after COVID-19. He stresses that in past disruptions in business, the companies who have failed, in many cases, simply were not willing to make necessary changes in their business model to adapt to the new world. Think about taxi companies who have flailed about since the inception of Uber and Lyft because they have simply refused to change the way they do business to make their services more convenient for their customers.

What I learned from watching the video is that disruptions come in waves. Some may be sudden like 9/11 or COVID-19 and some may be slower to develop as the 2007-2008 Great Recession. There will continue to be waves of disruption, and the reality is that they may be closer together in the future. Remember, we had experienced more than 128 months of economic expansion. This steady and seemingly certain growth made us comfortable with our lives and finances or as “Simon says” bluntly in the video, “lazy.”

Maybe we all needed a “reset” for our lives going forward. When it comes to our core business, our team has been discussing in our meetings that the reason we set aside funds during retirement in a stable money market account was for potential disruptions—anything from a Middle East flare-up, to a sudden halt in oil production or even something like the assassination of a president. We want our retired clients to have access to 12 months of savings to meet retirement expenses in case of…you fill in the blank.

Phil, one of our advisors, reminded me that a fundamental principal of financial planning services is for everyone young and old to have 3-6 months of income set aside in a savings account designated for emergencies. Most individuals would confess they had not followed this simple principle and that they were just pleased with themselves that they were participating in their employer’s retirement savings plan. In a crisis like this, we are jolted to action and reminded that we must be prepared for disruption and put in place financial planning principles that will allow us to weather these “waves of disruption.” One disruption helps to prepare us for the next.

Remember the disruption of 9/11 that came so suddenly? How did we adjust? We were no longer allowed to wait at the gate as a family member got off the plane, standing instead behind a barrier of entry. In major airports, mobile phone lots were created with billboards that stated when flights were arriving. We now go through a long line of security that inspects everything we are taking on the plane. Special travel bags were developed for computer storage and for personal items to pass through security.

Many may not see the 2007-2008 Great Recession as a “sudden disrupter,” but it did come over a short period of time. Banks had taken on mortgage loans that were not collateralized properly. They were called “no doc” loans where if you were breathing, you could buy a home, regardless of your job status or income. Banks began to fail. I remember that a financial planning services client of ours had a loan with a failing bank when the recession hit and their loan was called. Our client, with nearly no notice, had to sell some of their property to pay off the loan at an inopportune time. For them, that was a serious disruption. But again, this crisis resulted in critical changes to the banking industry and the housing market. Laws and policies were put in place to protect consumers from irresponsible loans. Realtors and appraisers were given more stringent requirements for valuing and pricing homes. Individuals became more aware of and thoughtful about the banks they were willing to work with and the types of loans they were truly able to accept.

This current crisis will be remembered for many years just as 9/11 and the Great Recession continue to be defining moments for many of us. Each time these events occur, we hear the words “But this feels different.” The common thread may well be that all disruptions are different and unprecedented, but also very much the same. First, panic and fear set in. Then, concern and worry. The third response depends on the individual. For some, they hunker down, wait until the disruption is over and an all-clear sign is given, then return to past patterns. But for others, they see the disruption as an opportunity to “reset” and embrace change, adjusting to catch the next wave of opportunity.

Please understand that the virus is real and there has been a tragic loss of life. Individuals and families across the globe have been affected. The question I propose is, once this is over, will we embrace this as an opportunity to reset? What lessons will we take with us from this experience? Which values and principles will we begin to practice today that will prepare us for the next disruption wave?

As financial planners, whose jobs it is to look into the future, we will continue to set aside funds in our clients’ portfolios for emergencies and immediate needs. We will continue to transition a clients’ 529 accounts to conservative allocations as college nears for their children or grandchildren to ensure funds are available for that expense. During retirement, we will set aside 12-18 months of retirement spending. And we will seek out investment opportunities when companies have been oversold due to panic selling to maintain a prudently diversified portfolio that includes U.S. Treasuries, U.S. stocks, and foreign stocks.

During this season, we are learning new ways of serving our financial planning services clients—virtually and digitally. This disruption has taught us more robust ways to communicate and share information. Most importantly, it has taught us never to take for granted the simple things like sitting in a room together, face to face.

At the end of the day, disruptions will occur. Going forward, they may happen closer together as the entire world continues to move faster and faster. We encourage you to do a reset and engage a trusted financial advisor who is willing to navigate the waves with you, learn from these experiences, and ensure your financial security at every turn.