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Simple Six-Step Financial Planning Process
Financial Planning is simply a process. Generally, it comprises six-step as outlined below.
Financial Planning is simply a process. Generally, it comprises six-step as outlined below.
1. Determining and defining the mode of relationship with the customer
2. Gathering client data for evaluation
3. Analyzing and evaluating the client’s financial status
4. Developing and presenting financial planning recommendation(s)
5. Executing the financial planning recommendations 6. Regular monitoring of the plan
The following is a more detailed insight of what happens during each step of the process.
1. Determining and defining the mode of relationship with the customer
To go through this step, the financial planner will have to define the scope of the engagement with the client. Prior to providing any financial planning service, the financial planning practitioner and the client will have to mutually define the scope of the engagement.
Why is the necessary? The process of mutually defining (and agreeing) the scope helps to determine the type of activities that are necessary to proceed with the engagement.
This may include but not limited to
a. Identifying the services to be provided.
b. Disclosing if there is any material conflict of interest from the financial planner.
c. Disclosing the how the financial planner is to be compensated
d. Determining the client and practitioner’s responsibilities.
This initial step is necessary to establish realistic expectations for both the client and the financial planning practitioner (or financial planner).
2. Gathering Client Data
This step is essentially a fact finding process and entails the following areas:
a. Determining a client’s personal and financial goals and priorities.
b. Obtaining quantitative information and documents from the client.
3. Analyzing and evaluating the client’s financial situation
During this step, the financial planner takes the client’s data to thoroughly analyze them. This is to gain an understanding of the client’s financial situation and then evaluating how much of the client’s financial goals and priorities can be met by the client’s resources and current action.
4. Developing and presenting financial planning recommendation(s)
The financial planner will identify and evaluate the alternatives available for the client. He will then have to develop suitable financial planning recommendations, taking into account step (3) above. Once he has developed the recommendations, he then presents it to the client for consideration.
5. Implement the financial planning recommendations
During this step, the client will have agreed on the type of recommendations or solutions to be implemented. The financial planning practitioner and the client will mutually agree on the type of services (if any at all) to be provided by the planner.
6. Regular review of the plan
This step involves monitoring and reviewing the recommendations and the client’s progress of the financial plan. It may also involve following up and discussing with the client on the changes (if any) in view of any changes in his personal environment as well other new situations e.g. changing tax laws.
Achieving financial success is really quite simple just by following this six-step process.