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Short-termism: When is it safe to deviate from your long-term plan?

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ben-jones-headshotOver the last several months, I have been thinking a lot about short-termism – that is, concentrating on a short-term tactic at the expense of a long-term strategy. This has always been a behavioral hurdle for investors and is increasingly an issue for Wall Street and public companies as well. I’ve seen short-termism infiltrate our work and personal lives through social media, tweets and all of the features on the phone in our pocket. Let’s face it: there is no shortage of demand for our attention and time.

As an advisor, you’re versed in the art of long-term planning, and for those goals, short-termism might be thought of as the enemy. However, in keeping a long-term, big-picture perspective, there are many times when using a short-term tactic could actually lead to a better outcome for your clients.

This point really hit home for me a couple months ago when I spoke with Carol Lee Roberts from the IDFA about the topic of divorce financial planning. Nearly all advisors will have at least one client that experiences divorce as a life event – sometimes more than once. Divorce by itself is a relatively short proceeding in the long-term plan of a client, lasting anywhere from three months to 24 months or more in some cases. The planning need during a divorce is for a very specific objective: ensuring an appropriate financial separation. And with the complex rules related to divorce, it often requires specialized expertise outside of your typical focus. This is a situation where you may have the opportunity to augment your knowledge by bringing in an expert. Maybe you have a specialist on your team, or at your firm, or a trusted outside expert that you can refer. Regardless of where you source the expertise, one thing is for sure: this is a short-term engagement.

Why might you use a short-term tactic and potentially introduce another “advisor” into the equation?

  • Your client gets the specialized expertise they need to achieve their objective.
  • You are detached from an emotionally charged event in your client’s life. You may not want to be that constant reminder of negative period.
  • You avoid potential conflicts of interest. In the case of divorce, you likely worked with both parties, but working with one and not the other during the divorce process could create a conflict of interest.

So how do you determine when to use a short-term tactic as part of a long-term strategy? Start by answering these three questions:

  1. What is the appropriate time horizon for this tactic to achieve success?
  2. How will I set appropriate expectations for my client?
  3. Based on what I know about the parties involved, how will I manage their behavior to the agreed-upon strategy?

Divorce isn’t the only situation when a short-term tactic might need to come into play. There are other life events (death of a family member, business bankruptcy, job loss, short-term disability, etc.) that may require a short-term tactic to achieve the goal that your client has in mind. Consider taking a goals-based approach – a topic we recently covered on the podcast – to match your advice to the various time horizons of your clients’ objectives. If you’re not sure where to begin, answer the three questions raised above and be sure to tune in to the Better conversations. Better outcomes. podcast.

Hope you have a wonderful and productive week.

Ben Jones

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