Financial Planning Process

The Financial Planning Process Explained

In today’s article, I want to breakdown the financial planning process for people who need help with finances.

Many adults that are competent, well-educated readily admit they struggle with financial theories including me.

This isn’t surprising because most school curriculums don’t teach financial management fundamentals.

However, this is where a professional planner enters the picture.

Financial planners manage the financial aspects of your private financial life and help people to organize and grow their investments.

However, many people are reluctant to work with a planner because they are not familiar with the financial planning process works.

The financial planning process can be broken down into seven steps:


Step 1 – Preliminary Meeting & Assessment

During a consultation, the potential client and the financial planner get to know one another.

This involves a meeting during and how he/she is compensated for these services.

In turn, the client has an opportunity to ascertain whether the planner can offer the sort of support required.

Ideally, the planner should take this opportunity to get some idea of the potential client’s present financial position and targets.

It’s necessary for both parties that the relationship begins on a foundation of confidence and trust.

If it’s a good idea to proceed, the planner should then offer the potential client with an engagement letter that serves as a contract setting forth the services to be provided, the fees for these services, and the client’s responsibilities during the financial planning process.


Step 2 – Gather Information & Establish Goals

The financial planner must gather a significant quantity of information to be effective.

The information gathered can be either quantitative (e.g. financial information about the client’s income, expenditures, and assets).

Or qualitative (e.g., non-financial information about the client’s risk tolerance, expectations regarding future standards of living, and health of the client and family members).

Next, both the short-term and long-term aims of the client must also be identified.

Such goals might be to have “an adequate income in retirement “, “start a new business Venture”, “invest in property overseas” or to “provide for a child’s education. ”

Once targets have been determined, it is essential to prioritize or rank them in order of importance.

This is great to always have money in your savings account.

Subsequently, some of the major financial and legal records that are usually secured during the data-gathering phase include:

  • Wills, trusts, and powers of attorney
  • Personal financial statements
  • Budgets
  • Retirement plan statements, brokerage account statements, and fund statements
  • Insurance policies (life, disability, health, and property and casualty)
  • Divorce settlements
  • Federal and state income tax returns
  • Buy-sell agreements

Help yourself by being prepared with the right paperwork before you attend any meetings.


Step 3 – Develop Plan & Assess Information

This is where the planner takes the information develops a plan, considers the goals of the client, and is intended to help the client achieve his or her goals.

To help in the process, the planner will use computer programs to supplement recommendations and his analysis.

What can you expect?

At a minimum, a comprehensive analysis includes a review of liabilities, assets, present and projected income, and insurance policies, and investments.

The planner may seek the assistance of other professionals if authorized by the client. (e.g. tax attorney or insurance agent).


Step 4 – Current Plan

This is where the financial planner explains the recommendations and meets with the client and provides the client with a copy of the plan.

The plan could be revised based on client feedback once the client has a chance to review the plan.

Key elements of a written financial plan are likely to include the following:

  • Review of the goals of the client
  • Analysis of the client’s current situation
  • Specific recommendations from the financial planner for helping the client get from where he is to where he wants to be (i.e., to help him achieve his goals)
  • An action plan designed to implement the financial plan


Step 5 – Implement Plan

This stage is the most crucial of all. If the client fails to follow through on the recommendations of the planner, the plan will be futile.

Plan implementation involves acting on the recommendations identified in step 4.

This may involve a variety of tasks, including modification of insurance policies, sale of investments, the purchase, adoption of legal instruments, and changes in savings and spending habits.

It may also include working with other professionals (e.g., check with the tax lawyer to ensure the new tax return was drafted).

Based on the skills, some of these action items will be performed by the financial planner, while some will be the responsibility of the client.

Most planners will handle implementation duties.


Step 6 – Monitor Plan

Because circumstances vary plans will need to be monitored to ensure they remain relevant and helpful.

This step involves evaluating the effectiveness of the strategy in achieving the client’s objectives.

Unsatisfactory progress or performance requires that corrective action is taken.

For example, a new investment combination must be selected.


Step 7 – Review Plan

Financial planning is an ongoing procedure.

The financial plan has to be changed because the individual circumstances of a client will change.

Such as, clients get married, (or divorced), have new kids, experience changes in health, change jobs, etc.

In summary, updates may be required by all of these changes to the financial plan that the client stays on track to satisfy his targets.

In closing, as the economy changes, assumptions underlying the strategy have to get re-evaluated to make sure they’re still relevant in the present environment.

This is the basics of understanding the financial planning process.

The best outcome is building up your long-term wealth so money is always easy flowing into your life.

Faithful in your success!

Are you interested to learn more?

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