We’ve all faced conflicting goals, and it can seem like it happens all the time.

For example, when was the last time you worked, when in an ideal world you’d have been doing something else?

Maybe you decided to go to work because you really wanted to close a sale, even though part of you really wanted to golf instead.

Conflicting goals are part of life. Most of us have figured out relatively effective methods for making decisions even when there are two (or more) goals that conflict.

When goals really conflict, it means we cannot achieve both, at least not in the same way at the same time.

And sometimes clients are in denial about that fact.

Business Example
I’m pretty sure you could come up with dozens of examples on your own.

Here’s one that I ran into today. An advisor had a client selling a business. The client is in his sixties, married, with kids. The business has been very successful, and the client is selling out to a much larger firm in the same industry.

The pre-tax proceeds will be about $11 million. The gain is largely capital gain, but there’s also recapture on various assets that have been depreciated, as well as some real estate recapture. Overall, the estimated tax bill, between state and federal and the above recapture, will be around $3,500,000.

This client was all over the map in terms of his conflicting goals. He tells his advisor that he is horrified at the tax bite. But he also wants to take his chips off the table while the opportunity exists. He doesn’t want to work anymore. But he might want to reinvest in some new business. And he doesn’t want to make any estate planning decisions, even though with the sale his estate is likely to exceed the estate tax exemption.

Is this starting to sound familiar? [click here for “sounds familiar”] A client who wants everything, and isn’t willing (or says he’s unwilling) to make any tradeoffs?

Non-Decisions Are Usually Costly Decisions
The above mentioned business sale looks like it will close, and the client has made no decisions. He says that he doesn’t want to decide. Instead, by “not” deciding, he is deciding in favor of the default plan – actually no plan – that just happened to be in place by historical accident.

As a result, the client is likely to get relatively lousy outcome, compared to what is possible with even basic planning. He’ll pay a ton of tax, he’ll accomplish zero estate planning (meaning he’s teeing up another big tax when he dies), and, ironically, he’ll have less flexibility (because he’ll have less) cash if he does choose to enter a new business.

You Can’t Have it All
At least as there are death and taxes, you (or your clients), can’t have it all.

We can’t be in two places at once. We can’t have our cake and eat it too. We can’t take our gains off the table, and still have all the upside potential.

You know that. And your clients know it too, deep down.

But too often, clients somehow refuse to make what seems to the advisor like an obvious decision.

How to Help Clients Choose Between Conflicting Goals
Often the best way to help a client choose between conflicting goals is to simplify.

Most real world choices have multiple aspects. Almost any planning will involve some complexity, at least in the details.

In 1939, Albert Einstein (along with Enrico Fermi and Leo Szilard), persuaded Franklin Roosevelt to allocate an enormous sum of money to the theory that an atom bomb could be built.

How did they convince Roosevelt? Did they attempt to explain nuclear physics to the president? No.

Did they try to explain to Roosevelt why they believed that such a bomb was possible?

No.

Did they discuss the engineering challenges? Or the probable side-benefits even if a bomb were not possible?

None of the above

Instead, they focused one key decision factor: if it turned out the bomb were possible, what would the world look like if Hitler had it and the US didn’t?

They got Roosevelt to focus on the most crucial issue for Roosevelt, and they ignored everything else.

Simplify to the Key Choice
A client wants to liquidate, but doesn’t want to pay tax. You have a method that he can sell without paying tax, but it comes at the price of (say) not having liquidity.

If the client wants both liquidity and to avoid tax, that choice, to the exclusion of everything else, needs to be made clear to the client.

For example, in the above $11 million business sale, the advisor might frame the decision as something like “is it worth $3.5 million of taxes to you, Mr. Client, to avoid having to make a decision about the proposed plan?” (The advisor was proposing a trust that would shelter the gain.)

Conflicting Goals
Try to get the client to be clear about all his, her or their (in the case of couples, families or partnerships) goals.

You know how to do this by asking questions.

Then try to get them to rank their goals.

Many clients will claim that all their goals are “top priorities.” But that is not reality. Your client knows this. But sometimes they are paying you to make them behave like adults.

Making difficult choices, saying “I’m not willing to pay $3.5 million in taxes; I’d rather have less liquidity” is an adult decision. Refusing to decide (which, as we said, is actually still a decision, though a bad way to make one) is not an adult behavior and is not, in all likelihood, how your client became successful in the first place.

Key Decision Skill #1 – Focus on the MOST IMPORTANT Tradeoff
Any decision that is hard likely involves tradeoffs. If there are no tradeoffs in a situation, there is no decision to be made.

But when there are multiple conflicting goals, and the client is having a hard time deciding, there is significant evidence that helping the client focus only on the most important tradeoff, then decide on that basis, results is better decisions than other approaches.[1]

We will continue to discuss key decision skills in the remainder of this series on decision making. Stay tuned to our blog for more updates.

[1] https://plato.stanford.edu/entries/decision-theory/#WhaPreOvePro