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.
Understanding the Client’s Personal and Financial Circumstances
Obtain Qualitative and Quantitative Information
Clearly describe what quantitative and qualitative information will be required and collaborate to obtain that information.
Relevant quantitative information includes age, family situation, income, expenses, cash flow, assets, liabilities, employee benefits, government benefits, retirement accounts/benefits, insurance coverage, estate plans and capacity for risk.
Relevant qualitative information includes client’s health and life expectancy, family circumstances, values, attitudes, expectations, earnings potential, tolerance for risk, needs and goals and priorities.
Analyze Qualitative and Quantitative Information
Once the relevant information has been gathered, analyze and assess the information to ensure client circumstances are understood.
Address Incomplete Information
Collaborate further to gather the information and set relationship expectations based on what was gathered.
Identifying and Selecting Goals
Identify Potential Goals
Assist the client in identifying potential goals based on what is possible given the financial and personal circumstances noting that pursuing certain goals may impact other goals. Use reasonable assumptions and estimates including life expectancy, inflation rates, tax rates and investment returns.
Select and Prioritize Goals
Assist the client in selecting and prioritizing which goals to pursue including discussing any goals selected that may not be realistic.
Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action
Analyze the Current Course of Action
Evaluate the client’s current course of action, including the material advantages and disadvantages of the current course, and whether the current course maximizes the potential to actually meet the goals. Is the client already on track to achieve their goals with what they’re already doing or are there gaps?
Analyze Potential Alternative Course(s) of Action
In situations where the client’s current course of action may not be fully effective, and/or there is the potential for a superior alternative course(s) of action, consider and analyze such potential alternative course(s) of action, including the material advantages and disadvantages of each, whether each alternative helps better maximize the potential for the client to meet their goals, and how each alternative integrates the relevant elements of the client’s personal and financial circumstances.
Developing the Financial Planning Recommendation(s)
Select One or More Recommendations
Once the course(s) of action have been analyzed, make recommendations to maximize the potential to meet the client’s stated goals. The recommendation may be to continue the client’s current course of action, rather than pursue an alternative course of action. When making a recommendation consider:
- the assumptions and estimates used to develop the recommendation
- the basis for making the recommendation including how the recommendation is designed to maximize the potential to meet the client’s goals, the anticipated material effects of the recommendation on financial and personal circumstances and how the recommendation integrates relevant elements of personal and financial circumstances
- the timing and priority of the recommendation and
- whether the recommendation is independent or must be implemented with another recommendation
Presenting the Financial Planning Recommendation(s)
Present Recommendations and Supporting Information
Once recommendations have been developed present them to the client. When delivered, provide the information that was considered in developing those recommendations including supporting financial planning and projections analysis.
Implementing the Financial Planning Recommendation(s)
Address Implementation Responsibilities
Communicate not only the recommendation(s) being implemented, but the responsibilities of each party in the implementation process.
Identify, Analyze and Select Actions, Products and Services
Identify and analyze prospective actions, products, and/or services to fulfill the implementation of recommendations. In the evaluation process for each potential implementation choice, consider both the design of the action, product, or service, and the advantages and disadvantages of each relative to reasonably available alternatives. Identify prospective solutions and evaluate them relative to reasonably available alternatives.
Recommend Actions, Products and Services for Implementation
Once prospective actions, products, or services have been identified and analyzed, make a recommendation discussing the basis for making the selection, the timing and priority of implementation by disclosing and managing any material conflicts of interest that may exist with respect to the recommended action, product, or service.
Select and Implement Actions, Products or Services
After recommendations have been made, assist the client in making a final selection and then implement the action, product, or service and discuss any client selection that deviates from the recommendation.
Monitoring Progress and Updating
Define the Scope of Monitoring and Updating Responsibilities
Clearly establish both monitoring and updating responsibilities, and the scope of those responsibilities including:
• which actions, products, and services are and are not subject to monitoring
• how and when to monitor the actions, products, and services will occur
• the client’s responsibility to communicate any material changes to qualitative and quantitative information
• our responsibility to update the financial planning recommendations
• how and when we will update the financial planning recommendations
Monitor the Client’s Progress
Monitoring responsibilities means actually monitoring. Monitoring includes analysis, at appropriate intervals, of progress towards achieving goals, and review the results of that analysis with the client.
Obtain Current Qualitative and Quantitative Information
Because a client’s financial and other circumstances may change over time, monitoring responsibilities must include collaborating with the client in an attempt to obtain current/updated qualitative and quantitative information regarding the client’s personal and financial circumstances.
Update Goals, Recommendations or Implementation Decisions
Where the monitoring and analysis of the client’s progress, paired with the updated qualitative and quantitative information about their situation, results in circumstances that warrant changes to the client’s goals, recommendations, or selections of actions, products, or services, an update must be made as appropriate.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Be sure to contact a qualified professional regarding your situation before making any investment or withdrawal decision. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
