The Financial Planning Process

The goal of financial planning is to identify your objectives (personal and financial) and achieve them.

There are six steps

  1. setting your financial objectives
  2. gathering relevant information
  3. developing an appropriate plan
  4. implementing the plan
  5. updating the plan
  6. documenting the plan

Your financial advisor will guide you.

Set Your Financial Objectives

  • be realistic (meaningful, attainable)
  • be specific (explicit)
  • set challenging targets so you have an an incentive to change your habits
  • set a timeframe (short-term and long-term targets)
  • set priorities by importance and urgency

Gather Relevant Information

This step is often called fact finding.

  • who are you as a person?
    • your needs, fears, objectives, capabilities, family circumstances, …
  • what is your current financial position?
  • qualitative
    • your career aspirations, risk tolerance, preferred investments, family plans
  • quantitative
    • your assets, liabilities, income
  • builds trust between you and your advisor

Develop An Appropriate Plan

  • your advisor creates an appropriate, defensible plan to move you towards objectives
  • advisor requires specialized technical skills and services
  • advisor makes realistic recommendations that you can understand and follow
  • advisor looks at different scenarios (may or may not present them to you)

There may be several iterations as you and your advisor make refinements.

Implement the Financial Plan

Unless your financial plan gets implemented the whole process and plan are worthless. This is not the time to hesitate. The onus is on your financial planner to motivate you to take action in your best interests.

Monitor and Modify the Plan

The future will not unfold as we expect. To stay meaningful, your financial plan needs to be updated as your circumstances and economic conditions change. You might want an annual review.

TIP: Pick a planner who you think will give you post-sales service during the upcoming months, years and decades.

Documenting the Plan

This isn't as much a step as it is part of the whole process.

Your advisor should keep thorough records of

  • planning procedures
  • assumptions (e.g., interest, inflation)
  • recommendations and strategies
  • your decisions
  • commitment to provide ongoing monitoring
  • services or advice from external experts

Not only does record-keeping help you, it helps protect your advisor from future liability claims by showing

  • all the planning steps were followed when developing specific strategies for you
  • a reasonable basis for recommendations (due diligence)

Memories fade and disagreements can occur. You should also keep your own records and carefully review correspondence you receive. Written communication provides you an audit trail. With services like Gmail providing permanent online email, you can painlessly archive and search your records.

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