Think of a financial plan as the blueprint for identifying, pursuing and achieving your goals. The blueprint may be a written, broad-based document plan that encompasses your personal list of goals and objectives. It may be more specific and focused on a particular objective such as retirement. It may encompass all of your assets or may highlight a specific portfolio. Whatever its focus, the plan is unique to you. In its Standards of Professional Conduct, the CFP Board defines financial planning as “the process of determining whether and how an individual can meet life goals through the proper management of financial resources.”
There are seven steps in a financial planning process.
Establishing & Defining the Client-Planner Relationship
The financial planner explains or documents the services to be provided and defines his or her responsibilities along with the responsibilities of the client. The planner explains how he or she will be paid and by whom. The planner and client should agree on how long the relationship will last and on how decisions will be made.
Gathering Client Data & Determining Goals & Expectactions
The financial planner asks about the client’s financial situation, personal and financial goals and attitude about risk. The planner gathers all necessary documents at this stage before giving advice.
Analyzing & Evaluating the Client's Financial Status
The financial planner analyzes client information to assess his or her current situation and determine what must be done to achieve the client’s goals. Depending on the services requested, this assessment could include analyzing the client’s assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
Developing & Presenting the Financial Planning Recommendations and/or Alternatives
The financial planner offers financial planning recommendations that address the client’s goals, based on the information the client provided. The planner reviews the recommendations with the client to allow the client to make informed decisions. The planner listens to client concerns and revises recommendations as appropriate.
Implementing the Financial Planning Recommendations
The financial planner and client agree on how recommendations will be carried out. The planner may carry out the recommendations for the client or serve as a coach, coordinating the process with the client and other professionals such as attorneys or stockbrokers.
Financial Planning Recommendations
The client and financial planner agree upon who will monitor the client’s progress toward goals. If the planner is involved, he or she should report to the client periodically to review the situation and adjust recommendations as needed.
Progress and Updating
The financial planner will establish monitoring and updating responsibilities as well as monitor the client’s progress and obtain current qualitative and quantitative information and update goals, recommendations or implementation decisions.