Six Steps in the Financial Planning Process

By | January 19, 2015

Financial Planning is an essential process that individuals and families must go through at least once every year. It involves a thorough analysis of the present and future monetary needs of the client.

The planner must also possess the following attributes:

  • Logical mindset
  • Emotional objectivity
  • Mathematical proficiency
  • Ability to make reasonable projections about the future
  • Knowledge of financial products and services in the market
  • Communication skills to help client understand and implement the plan

The financial planner also acts as bridge between various domain experts such as insurance providers, lawyers, bankers, investment specialists and the client. It is the financial planner’s duty to be the agent of the client, to deliver the most ideally suited and well-integrated solutions for the client’s needs at reasonably low cost.

More often than not, it is in the interest of the client to hire the services of a qualified and experienced financial adviser who possesses the above qualities.

The following steps make up the financial planning process:

1. Establish and articulate the client-planner relationship:
The financial planner explains, in writing, the services she will provide, and defines the responsibilities of both client and planner. The planner discloses the quantum and source of her remuneration. Points discussed and agreed upon include the duration of the relationship and the decision making process.

2. Uncover client’s data, goals, expectations, and concerns:
The financial planner interviews the client in a structured manner. The aim is to document all the key numbers about the client’s financial situation such as assets, liabilities, income and expenses. She also notes personal and financial goals and attitude about risk. The planner also gathers all necessary documents for review before giving advice.

3. Evaluate the client’s financial situation:
The financial planner studies the information shared by the client to analyse his current status and determine what must be done to achieve the client’s goals. Depending on the services that the planner and the client have discussed and agreed upon earlier, this assessment could include analyzing the client’s regular savings, insurance protection, quality of investments or tax strategies. An important component that must be considered at this stage is scenario analysis. This is where the planner discusses with the client the possibilities of various financially detrimental situations – such as illnesses or untimely deaths – occurring. Also to be calculated is the cost and probabilities of these situations so as to mitigate their fallout in a cost-effective manner.

4. Present the financial action plan:
The financial planner explains various recommendations that address the client’s needs, based on the information provided. The planner goes through the finer aspects of each solution with the client to allow the client to make informed decisions. The planner listens to any other concerns the client may have and revises the plan accordingly.

5. Implement the action plan:
The financial planner and client discuss on how soon the action plan will be put into effect. The planner may act as a coach or mentor, helping to motivate the client, for example, to save more and invest regularly. Or the planner coordinates with other professionals such as insurance companies, lawyers, or mutual fund brokers to make vital cash allocations.

6. Monitor and review regularly:
The client and planner discuss when or how often they will commune with each other to revisit the goals and purpose of each component of the financial plan, as well as progress being made. In most cases, a comprehensive review is a must at least once every year, and whenever there are significant changes to the client’s life situation.

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