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Sudden Financial events require "triage"

Sudden Financial events require "triage"

| August 31, 2020
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In personal financial planning there are time when you need to manage the emotions that occur during quick market movements, sudden death of a loved one, sudden loss of income, job changes, etc. People sometimes need immediate emotional triage help to prevent making expensive knee jerk decisions.

Even when you have a well thought out and professionally managed long-term plan, which includes the expectations of investment risks and protection, when crunch time hits it’s very difficult to “stay the course”. Taking immediate action to assess the situation based on imperfect and incomplete information is also a risk but may be necessary and prudent.

Financial planning triage is mainly about managing emotions. Acting in a measured way to alleviate the run and hide response we naturally have as human beings when experiencing a disruption to our current situation.

To be clear, it is almost impossible to do this without a current financial plan already in place. Before you can triage the impact of a sudden financial event you need a reference point. In the medical triage environment, you diagnose quickly the situation, and stabilize the patient. The reference point is normalization of the body’s medical condition.

In the financial triage environment you normalize back to the current plan. The plan is the reference point.

Typical drivers of financial triage

Events. Significant movement in the value of one’s investments, or immediate needs for cash from unexpected events happen periodically.

Significant changes in income. Challenges arise from the loss of income or major changes in cash flow.

Changes in the family. Divorce, death of a loved one, severe injury or health related issues create significant challenges for the family. Emotional and financial.

Catalyst.  These drivers can be a catalyst for making poor decisions. Our brains are wired to want quick solutions. We want to get back to “normal”, back into our comfort zone.  To feel better we often make quick decisions to alleviate the discomfort. Having a way to triage this helps mitigate the risk of making decisions that have long term consequences.

Common steps to financial triage

To help clients conduct financial triage, we use an “assessment- to- action” approach. The goal is to move in a measured way. These steps are in order and many times are combined into one initial partial action step, followed by an analysis step, and then quick measured follow up action. Mitigate the stress and emotion of the moments.

Assess: Perform a rapid assessment. Recognize client is in pain. Extensive analysis is not an option. Quickly identify the pertinent issues and get to work before the situation deteriorates any further. Obtain objective evidence of the key issues within the context of the long-term financial plan.

Diagnose: Separate the emotions from the key issues. Address the emotions first.

Execute: Bring order to the fore front. Stabilize the need to act with a measured activity. Take action that is bold enough to address the emotional need but flexible enough not to cause long lasting success of the long-term plan.

Do not try to do too much all at once.

Example: Quick market sell off.

Client feels their future at risk financially. The pertinent issue is to stabilize and discuss the long-term effects, if any of their plan. Move some of the portfolio into cash to secure living expenses for 6 -12 months to alleviate the stress and create active movement. Do a review of the impact long term on their plan. Manage the fear of loss.

Example: Loss of income from job change.

Assess immediate cash needs and provide liquidity. Review the current financial plan with impact, if any, on short term impact, and long term if job change is a major life event. It may be or it may not be. Talk this through and bring in recruiting, skills training, or other relevant advisors.

Financial Triage summary

The focus of financial triage is managing the sudden event at a very deep personal level. Usually it is not about the money in the long term, but immediate action to buy some time and reduce the chances of making poor decisions that can have a long-term adverse impact.

The fact is there will be several times in a client’s life where a triage process will be highly effective and very much needed. Requiring all clients to have a plan is the first step in preparing them and you (if you are their advisor) to be able to work through the eventual ups and downs that are going to happen.

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