Imagine you are riding in the cockpit of a commercial airliner. The pre-takeoff checklists are complete, and the airplane has just turned to line up on the runway. Through your headset, you hear “Cleared for Takeoff,” and the Captain advances the thrust levers to takeoff power. The thrust from the engines pushes you firmly back into your seat, and the airplane begins to move down the runway, slowly at first, but speed begins to build very quickly. You are amazed at how quiet it is. Yet, things are happening fast, so fast that all you are aware of is the blur of buildings, trees, airplanes and airport vehicles out the side window. Suddenly, you hear a loud, deep noise behind you, a whoosh of air from somewhere in the cockpit, and the airplane begins to drift to the left. You can see the terminal building out of the front left window, and you are suddenly aware of a flicker of red and yellow lights around the instruments. And, something that sounds like a constant ringing. There’s a lot going on!
What I just described is the sudden loss of power from the airplane’s left engine at a time when maximum power is critical. For the pilots to successfully work through this potentially catastrophic problem, several things must occur. They need to understand what happens during a normal takeoff; know that something is wrong with this takeoff; identify the cause of the problem, know and recall the procedures to address the problem, and properly execute the procedures. Any breakdown in this process can result in an unsatisfactory outcome. The process cannot begin, however, without situational awareness.
Situational awareness involves being aware of what is happening in the vicinity, in order to understand how information, events, and one's own actions will impact goals objectives, both immediately and in the near future. Good situational awareness can help in everyday life: being cognizant of the impact of your actions at work; knowing how your children are doing in school; realizing you may not be driving in the safest part of the city, being able to form a mental picture of the traffic around you on the highway, etc. Developing situational awareness and keeping it up to date in a rapidly changing environment forms the central organizing feature from which all decision making and action takes place. Maintaining good situational awareness requires one to be attentive, mindful and perceptive, even when things are going well.
For the pilots in the above scenario to be situationally aware, they need to be able to create a mental picture of what is going on with the airplane and the environment around them. Only when this occurs, can the pilots begin to problem solve. Although this engine failure is an emergency condition and represents an extreme example, pilots work constantly to maintain situational awareness during normal flight conditions. This helps them know if they are on the proper course, at the proper altitude and at the proper airspeed. It helps them know if the airplane is operating correctly and if things are going well in the cabin. It helps them stay abreast of weather conditions and circumstances at the destination airport. It helps them know when something is wrong. Without situational awareness, flight safety could be compromised.
I believe situational awareness is every bit as critical to effective wealth management as it is to safety of flight. Let’s see if you feel situationally aware. How would you answer these questions? Do you have well defined, quantifiable goals? Do you know if you are on course to achieve your goals? Do you know what to do if you are not on course to achieve your goals? Are you aware of things out of your control that might go wrong and hurt your progress toward your goals? When things do go wrong, can you recall the steps in your contingency plan? Do you know your financial blind spots? Do you know that your ability to maintain situational awareness declines when you are task saturated, i.e., you have a lot going on in your life? If you answered no to any of these questions, you may not be situationally aware.
Here are some more specific questions. Do you know what level of expenses you can sustain in retirement? Do you know why your investments are invested the way they are? Are you aware of changes in the investment environment that might warrant changes in your investment strategy? Do you know how much you spend each year? Do you know what’s on your credit report? Are your permanent life insurance policies performing the way they are supposed to? Are you always up to date with changes in tax law? Are you always up to date with changes in estate law? Do you remember how your estate plan works? If funding college, do you know the impact on your other financial goals? If you answered no to any of these questions, you may not be situationally aware.
Without situational awareness, most people will not achieve optimal financial results. We all need situational awareness to get on course, stay on course, know when there is a problem, be able to identify the problem, and correct the problem.
So, how do you improve your situational awareness? Well, we can learn from the airlines – they have spent decades developing policies, procedures and training to help enhance situational awareness. At Second Half Strategies, we have tried to incorporate much of their experience into the way we help our clients. Our Wealth Management process is built around these pillars:
Planning: Create plans to address goals and contingency plans to address known risks. This process is similar to that which is used by airline pilots before each flight.
Guidance: Create points in time where we review the progress toward goals, actions that can be taken to get back on course, contingency plans, and changes to the operating environment (taxes, estate law, investment environment, economy, etc.). Pilots use “waypoints” in the sky to check their progress and have multiple resources to provide timely information.
Advice: Provide situational awareness when clients call and ask for advice. Help clients make decisions within the framework of their goals and the plan that supports those goals. Gather other resources when needed. Pilots have entire teams at their disposal to help them during flight: dispatchers, maintenance, air traffic control, other pilots, etc.
Error Management: Put processes in place to try to reduce human error in financial decision making. After all, the financial decisions we make during our lives have more impact on our financial results than the financial products we choose. For over 25 years, airlines have been implementing systems to help reduce human error in flight.
Our goal is simple: to have our Wealth Management process help increase your situational awareness so that you can make effective financial decisions. Remember, this integral picture forms the central organizing feature from whichall decision making and action takes place. Maintaining good situational awareness requires you to be attentive, mindful and perceptive, even when things are going well. As advisors, it is one of the greatest values we can provide.
By the way, if you are in your Second Half, situational awareness is even more critical because you have less time to meet your goals. So, please give some thought to areas where you feel situationally aware and where you feel that your situational awareness is deficient. Let us know. Your feedback will help our situational awareness so that we will know what to emphasize during our work together.
Speaking of being situationally aware, do you have any Second Half Strategies?