Financial Planning – A 6-step Process

The financial planning process can be broken down into the following six steps:

1. Establishing and defining the relationship with the client

2. Gathering client’s data for the purpose of analysis

3. Analyzing and evaluating the client’s financial status

4. Developing and presenting financial planning recommendation(s)

5. Implementing the financial planning recommendations 6. Monitoring of the plan

The following are the details.

1. Establishing and defining the relationship with the client

To go through this step, the financial planner will have to define the scope of the engagement with the client. Prior to providing any financial planning service, the financial planning practitioner and the client will have to mutually define the scope of the engagement.

This is really quite important. The process of mutually defining (and agreeing) the scope helps to spell out 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 how the financial planner is to be compensated

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 evaluating the client’s financial status

During this step, the financial planner takes the client’s data to thoroughly analyze them. This is to gain an understanding of the client’s financial situation and then evaluating how much of the client’s financial goals and priorities can be met by the client’s resources and current action.

4. Developing and presenting financial planning recommendation(s)

The financial planner will determine and evaluate all reasonable solutions available for the client. He will then have to develop suitable financial planning recommendations, taking into account step (3) above. Once he has developed these, he then presents it to the client. The client will then consider if he wants to implement them.

5. Implement 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 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 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.

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