Planners Need To Plan Better

Dennis Stearns, President of Stearns Financial Service Group, spoke at this week's FPA Retreat about the need advisors to fire test their business plan to withstand today's rapidly changing world.

A Planning Philosophy

Sun Tzu, a Chinese warrior and philosopher, once said, "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."  Stearns said Tzu's quote was relevant to today's need to have a strong business plan, as the changes the industry are going through will be rapid and momentous. "If we don't have a strategy for the future, tactics alone are not going to get us where we need to go," Stearns said. 

Learn From The Past

Stearns used Hurricane Katrina as an example of how planning can fail. He explained how FEMA and IEM anticipated what might take place more than a year before the devastation, but when it came to execute the plan, it was as if the scenario exercise had never occurred.  

Why did all the planning fail? Stearns offered it was because there was scenario planning, but not scenario learning. "Some of it was the failure to execute the play book.  They hadn't pushed it down to the level of where people execute items," he said.

Stearns also gave an example of the Japanese earthquake and tsunami, mentioning how the owners of the damaged nuclear reactors could have prevented the radioactive leakage by bringing in gas-fueled generators instead of trying to drop massive amounts of water for the cooling pool for spent fuel rods.

These two natural disasters showed how "pre-actively" parsing the details--and engaging the key people needed to execute the details--are vital to stress testing a plan.

Looking Ahead

Stearns believes that globalization, technology accelerators and the global age wave will create changes unlike any we have seen in our lifetime. He described the changes that are coming as "the industrial revolution on steroids."

Regarding planning for the future, Stearns noted it's important to distinguish the hard trends from the soft trends. "We know the age wave is going to happen," he said. "That is a hard trend. In some cases we even know what these people are going to be doing. The soft trends capture the variables. Don't bet the farm on soft trends."

Stearns also explained "creative destruction." "The great thing about capitalism is that if it isn't broke we break it and fix it better," he said. He added that "the [financial services] industry is behind when it comes to technology - the good news is that we will catch up quickly."

Where Firms Can Focus

Those that can lead through change will positively differentiate themselves, impacting the health of their businesses. To do this, Stearns cited "scenario drivers" that can make a significant difference:

1. Good communication skills
2. A well trained team
3. Strong expertise
4. A disciplined investment approach
5. Business planning

Firms that ignore these points might still benefit from the tailwind the industry provides and do okay, but they'll likely underperform others who are on the leading edge. "They will have more lost clients, more lost opportunities and some lost team members," Stearns said.

Prepare For Unprecedented Change

"We are going to see change unlike anything we have imagined," Stearns said. To illustrate this, he wanted the attendees to think of the math formula where "1 + 1 = 5." "Be a leader, in small ways or large ones, in helping your clients survive and prosper in the massive change that lies ahead!"

At the conclusion of the presentation, Stearns told me that if there was one take away he hoped advisors would act on, it would be for firms to conduct at least a half day off-site meeting to dive into their plans.