DEFINING THE SEVEN PHASES OF A COMPREHENSIVE FINANCIAL PLAN.
Review Current Financial Situation.
The first step in the financial planning process involves taking a detailed look into a person’s current financial situation. This means examining a person’s savings, income, debts, and current living expenses. A professional financial planner will collect a variety of financial documents, such as a list of debt balances and current assets, and determine where the person stands financially and what changes will need to be made to reach specified goals.
Establish Financial Goals.
Financial goals help guide a financial plan and should be clearly stated at the start of the financial planning process. These goals may be different for everyone, such as getting out of debt before retirement, building an emergency fund, or saving enough money to pay for the children's or grandchildren's education. When establishing financial goals, it is important to set realistic expectations based on current income, assets, health, and overall ability to meet goals within a specified timeframe.
Analyze Current Course Of Action.
Good decision-making requires having an understanding of current and alternate courses of action which individuals can turn to when the current course does not work out as intended. A main course of action typically includes continuing on the same course, changing the current situation, expanding the current situation, or taking a new course of action. It is important to consider all alternative strategies to determine which is best for the situation.
Develop Recommendations.
A planner will develop the financial planning recommendation(s) by selecting, from among the potential alternative courses of action, one or more recommendation(s) designed to maximize the potential for meeting the Client’s goals. For each recommendation selected, the financial planner needs to consider the following information:
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 the Client’s financial and personal circumstances, and how the recommendation integrates relevant elements of the Client’s personal and financial circumstances;
The timing and priority of the recommendation; and
Whether the recommendation is independent or must be implemented with another recommendation.
Present Findings & Recommendations.
The next step requires a Financial Planner to present the recommendation(s) to the Client and discuss with the Client the information that was required to be considered when developing the recommendation(s). Practice Standards do not require the Financial Planner to put all Financial Planning recommendation(s) in writing, nor must the financial planning recommendation(s) have the same elements. A Financial Planner should exercise professional judgment in determining how best to present Financial Planning recommendations to Clients.
Developing and presenting the recommendation(s) are distinct steps that occur at different times and sometimes by different individuals. Indeed, the person who develops the recommendation may not be the same person who presents the recommendation to the Client. As technology’s role in developing Financial Planning recommendations increases, the distinction of these steps will be more pronounced.
Implement A Financial Plan Of Action.
Once financial goals have been specified and alternative courses of action created and evaluated, it is time to develop an action plan. A financial action plan involves finding ways to achieve financial goals. Goals should be listed in order of importance and once the most prioritized goal has been completed, start working towards the next goal on the list. A professional financial planner can help put a financial plan into action.
Reevaluating & Revising Your Financial Plan.
Financial planning does not end when the financial plan is created. It requires regular evaluation to ensure that a person is on the right track towards reaching his or her goals. A financial plan may need to be revised on a regular basis as situations arise, such as a change in income or the loss of certain assets or investments. It is not always clear what changes should be made when reevaluating a financial plan. Fortunately, a financial planner can provide guidance.
