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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. Expressing and defining the scope of relationship with the customer
2. Gathering client’s data for the purpose of analysis
3. Analyzing and evaluating the client’s financial situation
4. Developing and presenting financial planning recommendation(s)
5. Implementing the financial planning recommendations 6. Monitoring of the plan
The following is a more detailed insight of what goes into each step of the financial planning process.
1. Expressing and defining the scope of relationship with the customer
During this step, the financial planner will have to determine the scope of the service with the client. Prior to providing any kind of financial planning service, the financial planning practitioner and the client will have to mutually determine the scope of the engagement.
Why is this important? The process of mutually defining (and agreeing) the scope helps to determine the type of activities that are necessary in order to carry on with the provision of the service.
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 practitioner’s form of remuneration.
d. Determining the client and practitioner’s responsibilities.
This first step is necessary to establish realistic understanding for both the client and the financial planning practitioner.
2. Gathering Customer 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 having an in-depth understanding of the client’s financial status
During this step, the financial planner essentially takes the client’s data to thoroughly analyze them. This is to gain an understanding of the client’s financial situation. Once that is established, the planner will then find out how much of the client’s financial goals and priorities can be met by his resources.
4. Developing and presenting financial planning recommendations and solutions
The financial planner will determine and evaluate all reasonable alternatives available for the client. He will then have to work out suitable financial planning recommendations, taking into account step (3) above. Once he has done these, he then presents it to the client. The client will then consider if the extent of the implementation of this plan.
5. Carrying out the financial planning recommendations
This step will need the client’s agreement 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.
Reaching your financial goals is not too hard, as long as you follow this six-step process.