THE FINANCIAL PLANNING PROCESS – WHAT ARE THE STEPS?

What the difference between financial planning and advice? This article will explain more about the financial planning process.

For any questions, or if you are looking to invest, you can contact me using  this form, or by using the WhatsApp function below.

Introduction

Obtaining financial independence is a truly liberating thing and it can make a huge difference to your lifestyle.

As an expert in offering financial and investment guidance that is tailored to the individual needs of my clients, I have a great deal of experience in financial planning.

If you have no idea what to do with your money to achieve your life goals, then feel free to reach out to me by email or WhatsApp because I can provide you with all of the financial planning support you might need.

That said, I think it is worth looking a little deeper into the processes that go on in financial planning. After all, it is not just about looking at the markets and establishing where there is a good potential yield to be had.

In fact, sound financial planning relies on a series of steps that takes into consideration all of the personal circumstances and life goals of the individual or families concerned.

Without them, the whole financial planning process would be different every time you sought professional guidance.

Of course, offering formal financial advice is regulated in many parts of the world and rightly so.

You don’t want to be advised of a particular investment opportunity only to find out that this guidance has been offered for an improper reason.

In short, all of the advice you receive should be given because it adheres to the particular step of the financial planning process you are on.

This should be transparent and verifiable.

In the United States, any financial planner you talk to professionally should be certified under the Financial Planning Standards Board (FPSB), for example.

In the UK, there is a similar system whereby the Financial Conduct Authority (FCA) regulates the financial advice given out by registered advisors.

Both the FPSB and the FCA have similar regimes when it comes to the business of managing the financial planning process.

I don’t want to talk too much about the similarities and differences of the two regulatory systems, however. My focus here is to inform you about the process of financial planning itself.

The point is that there is a common process that you can expect professional advisors to follow.

I am going to detail the six steps that are involved in the financial planning process as laid out by the FPSB.

Sure, some advisors will use an extra step here or there or bring two steps together so they only mention five.

Nevertheless, all accredited guidance on personal finances will adhere to the basic principles outlined in these six steps.

Read on to find out exactly how these steps work together to provide investors with a sound level of guidance that they can rely on.

The whole point with the financial planning process is that you are able to make informed decisions whether or not you take the advice offered to you.

That’s the way I work. I like to assist all of my clients with decision-making that suits them and that helps them to achieve the financial independence they are looking for.

As mentioned, I am happy to talk to you today about your financial planning.

Alternatively, read on to find out about each of the six steps involved in the financial planning process.

Before that, however, let’s take a moment to understand the true value of professional financial planning advice.

Why Plan For Your Financial Future?


As I have already said, sound financial planning is about obtaining financial independence and achieving wider life goals.

These differ according to the individual concerned but life goals might be anything from owning your own property, being able to retire with enough investments to see you through or acquiring sufficient wealth to help children get a good start in life.

Without planning properly, you may achieve your goals but the chances are that you will not.

Indeed, without planning your finances, you are leaving things to chance.

In turn, this leads to stress and worries about the future.

Indeed, without planning, you may never achieve your goals and enjoy the financial independence so many of us seek.

However, planning your personal finances to achieve the independence you want in life – whether it is from creditors or the need to carry on working for a living, for example – means you can be free from such concerns.

The trouble many people face is that planning their finances around their wider ambitions for their lives is not easy.

In fact, personal financial planning can be a minefield unless you know what you are doing.

That’s where understanding the process of a financial advisor who can guide you through it all is so beneficial.

Make contact with me if you’d like to discuss your financial plans or need help getting started.

For the time being, however, I’ll move on to the aforementioned six steps of the financial planning process.

Step One – Understand All the Financial Goals

The idea of a financial planning process that is clear to everyone is that it makes the whole business of devising a strategy obvious and understandable.

Therefore, the very first thing you need to do in the process is to understand all of the financial goals of the individual or individuals concerned.

Sometimes, personal planning advice might be offered to a lone individual, but it is just as likely to be a couple or even an entire family.

Regardless of who the client is, the initial step should be to get to know them, to understand them and to gain a better understanding of their life ambitions.

Only when this has been done will it be possible to start thinking about them and their financial goals in any meaningful way.

Why? Well, because everyone is different. Not only do they have different life circumstances, but they’ll also have different attitudes to risk, to saving and to expenditure.

They will also have a range of different family circumstances, all of which can have an impact on their current and future financial commitments.

At the start of the process, therefore, some people can find that they are being asked lots and lots of questions.

This is quite normal because the answers will be revealing and help me to establish what sort of advice I ought to be prioritising – pensions advice, debt management guidance or investment advice, for example.

This is about establishing a relationship so that I can get to know what makes the person I am talking to tick – what motivates them and what is of less importance.

Some of the questions will also help to establish whether there are any potential conflicts of interest. Although they rarely crop up, it is part of any good professional’s service to make sure everything is above board.

Part of this phase of the planning process will also involve laying out exactly which areas of financial planning I can assist with.

This is called the scope of engagement and it is important for clients since it allows them to understand exactly what is on offer and – sometimes, at least – what is not.

Step Two – Collect Appropriate Information

Any competent financial planning professional will have a good idea of their client by the end of the first step.

In my case, I try to make this as personal as my clients feel comfortable with because I appreciate that asking people about their finances and intimate family matters can be seen as prying.

Of course, that is not the case but this is why the scope of engagement is so important.

Without it, a financial planner might ask seemingly irrelevant questions. However, with one, clients will be able to realise why certain questions are being asked and why certain information is being collected.

It is the scope of engagement that should provide you with the reassurance you need that what is being asked of you is appropriate to the plan that is being formulated on your behalf.

In other words, financial planners should only offer guidance or take details that are within the agreed scope of engagement and not beyond it.

For example, you might be asked about your current private pension plan or the details of any workplace pension scheme you might have contributed to in the past if part of your scope of engagement is connected with your investment portfolio or retirement plans.

If it is not within the scope of engagement, then it should remain private.

That said, I try to work with a very rounded approach that covers all of the most important financial products so that the advice I offer is as beneficial to you as possible.

Needless to say, the data I do collect to come up with recommendations needs to be stored securely on your behalf.

Remember that the information that is needed is not just quantitative data. In other words, it does not just come down to things like how much income your have and your current asset valuation.

There are many qualitative pieces of information that a planner might need to collect, too.

This could be things like your attitude to risk, the sort of luxury items you might want to purchase when you are financially independent or the places you might like to live.

Although these examples could never be described as quantitative personal data, they should still be treated with just as much respect by financial advisors because they represent just as much of the life of an individual as the so-called hard data.

In some cases, copies of documents might need to be made in step two, as well. Typical examples might be life assurance policies, financial statements or alimony paperwork.

Again, it all comes down to individual circumstances but without collecting the relevant data, it would not be possible to move onto the next step.

Step Three – Assess the Financial Status of the Individual

A thorough assessment of the finances of a client is essential before any planning is actually considered.

From the relationship that was forged in step one and the information that was gathered in step two, it should be possible

 to come up with this sort of assessment of the current financial position.

Of course, this should only be carried out within the agreed scope of engagement.

The principle is to look at the financial strengths and weaknesses of the individual(s) concerned to see which things are working towards the established financial goals and which are not.

Obviously, those investments or savings accounts which are not performing well are likely to be a drag on achieving financial independence but there is much more to it than that.

Some financial goals may be more short-term. By liquefying a poorly performing investment, for example, it may be possible to clear a debt elsewhere and avoid excessive fees.

Overall, the analysis phase of the financial process will focus on the client’s current financial situation and compare it to the objectives and priorities they have for their future.

Personally, I find it surprising how few people I deal with have a complete grip on their portfolio of financial products, investments and debts.

Sometimes, it becomes immediately clear that some rationalisation will improve their financial situation almost immediately.

That said, developing a financial plan for the future is not about carrying out an overview and making a few quick fixes here and there.

The analysis phase should weigh the current financial status of clients against their stated aims. Establishing what to do next comes in the fourth step, where a plan is first formulated.

Step Four – Develop a Proposed Financial Plan

The next step that is needed for a properly accountable financial planning process is to develop a way forward.

As mentioned, there may be some straightforward things that can be done at short notice to deal with underperformance or excessive exposure to risk.

Nevertheless, a proposed financial plan should be primarily devised around the preferred outcomes of the client in question as he or she has outlined in the first evaluation phase.

It is important to note, however, that this step is not about presenting a fully-fledged plan and ‘selling’ it to the client.

The approach of a conscientious financial planner should always be based on making proposals. Ideally, any such proposal should be rationalised in such a way that the client immediately understands why it is being recommended in accordance with their life goals.

In other words, the plan should not be finalised in any sense. It is more of creating a dialogue with the client so they can see all of the options available to them that make sense given what they want to achieve.

So, the financial plan might rule out certain elements that are deemed inappropriate for the client concerned but they must not rule things in.

What the planning process should now be about is coming up with suggestions about a range of investments and financial products that will work according to their wider goals.

It is up to clients to assess each of these options and to make the decisions on which way to proceed.

Sometimes, a few different options will be made available, each with a different attendant level of risk.

This way, the client can choose the one that they think is most suited to them even if the outcomes may vary over time.

Only once a set course has been agreed according to the client’s needs and priorities should the next step be taken, that of implementation.

Step Five – Implement the Plan According to the Agreed Recommendations

With a range of recommendations to choose from, most clients will feel happy to proceed with their preferred options.

It is usual for a portfolio of investments to be recommended which helps to spread risk but remember that other decisions may also have been made, such as liquefying certain assets or clearing things like mortgage debt.

Regardless of the decisions that were taken as a result of the dialogue between the client and the advisor in the fourth step, now is the time to put them into action.

Who is responsible for what? In some cases, financial planners will undertake some of the paperwork for their client but, in others, just the recommended changes will be agreed.

This is something that should be defined in the agreed scope of engagement. Some clients want to handle all of the changes they will make in their personal financial plan themselves while others want help.

I appreciate that assistance in dealing with financial changes like those outlined here takes time and some degree of expertise, so I am happy to help.

That said, if you want to handle such matters yourself, then there is no problem proceeding on that basis.

The point is that anyone acting as your financial planner should have responsibility for drawing up the implementation plan and ensuring that it has been followed in accordance with the agreements that have already been reached.

Of course, clients can and do change their minds about what they want.

This, too, can always be accommodated professionally but it may mean going back a step or two to either revise the scope of engagement or the proposed plan.

In other words, the decision-making surrounding changes should always include the same degree of openness and professionalism as the original process.

Step Six – Review the Plan to Ensure It is Meeting Its Objectives

With the priorities established, the proposals made and agreed upon and the implementation phase completed, there is one last step for financial planners to consider.

This is how and when the plan will be reviewed.

Of course, some clients never want to be involved with reviewing their plan, especially when it starting to deliver the desired outcomes.

However, reviewing is a crucial part of the financial planning process and I’d recommend including some form of review so you can check on progress and other possibilities available to you down the line.

According to the FPSB, planners and clients ought to define and agree on the terms for reviewing and evaluating the client’s plan performance by mutual consent.

Typically, this is done to confirm that the plan is performing as expected and, at least, not under-performing.

However, it should also include a re-evaluation of the client’s life goals, their attitude to risk, any changes in their lifestyle and relevant market shifts.

Ideally, an evaluation of how much progress towards the client’s life and financial goals has been achieved will be offered.

Moreover, the review is there to ensure the plan – even when it is performing well – remains fit for the task it has been set.

After all, everyone’s life takes unexpected turns and what suited you when the plan was first drawn up may now be less of a priority.

I see my role as a planner as crucial in re-establishing what the financial plan was supposed to achieve in the first place.

As such, you might say that the sixth step is a little like going back to the first.

In some cases, this might be true but given the way I like to build long-lasting relationships with my clients, it is probably fairer to say that it is a seamless continuation of the services I offer.

Summing Up

There are six steps to coming up with an open and accountable financial planning process.

If you follow all six of them, then the plan will necessarily be more robust than if you only follow a couple.

Each step is designed to make it easier for clients to understand why decisions are being made and why certain recommendations are being put forward.

In short, it is about empowering clients to make informed decisions while they still benefit from the expertise of a planner acting on their behalf.

Reviewing plans, especially long-term ones that are setting out to achieve ardently held life goals is important.

As such, whether you want an independent eye to look over your current financial planning or would like assistance with setting up a financial plan from scratch, I am here to guide you.

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