Financial Planning – A 6 Step Process


Is Financial Planning a very complicated process?

Not really, if you simply follow this six steps as outlined.

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. Executing the financial planning recommendations

6. Regular review of the plan

The following are the details.

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 the practitioner’s material conflict of interest.

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 (or financial planner).

2. Gathering Client Data

This step is basically a process to find out more about the client and will cover 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 basically takes the client’s information and does an analysis. This is to gain an understanding of the client’s financial situation and then evaluating to what extent the client’s financial goals and priorities can be met by the client’s resources and current action.

4. Developing and presenting the financial planning recommendations and solutions

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. Executing the financial planning recommendations

At this stage, the client will have agreed on certain recommendations or solutions to be implemented. The financial planner and the client will mutually agree on the type of services (if any at all) to be provided by the planner.

6. Regular follow-up of the plan

This step involves monitoring and reviewing the recommendations and the client’s progress of the financial plan. It may also involve reviewing and discussing with the client on the changes (if any) in his personal circumstances 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.

Source by Andrew Chan

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