Financial Planning - a 6-step process

Financial Planning is simply a process. Generally, it comprises six-step as outlined below.

1. Expressing and defining the scope of relationship with the customer

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 is a more detailed insight of what happens during each step of the process.

1. Determining and defining the mode of relationship with the customer

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.

Why is the necessary? The process of mutually defining (and agreeing) the scope helps to determine the type of activities that are necessary to proceed with the engagement.

This may include but not limited to

a. Identifying the services to be provided.

b. Disclosing the practitioner's material conflict of interest.

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.

2. Gathering Customer Data

This step is essentially a fact finding process and entails the following areas:

a. Determining a client's personal and financial goals and priorities.

b. Obtaining numerical and quantitative information and documents from the client.

3. Analyzing and evaluating the client's financial status

During this step, the financial planner basically takes the client's information and does an analysis. This is to gain an understanding of the client's financial situation and then evaluating to what extent 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. Carrying out the financial planning recommendations

This step will need the client's agreement on the type of recommendations or solutions to be implemented. The financial planning practitioner 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 following up and discussing with the client on the changes (if any) in view of any changes in his personal environment as well other new situations e.g. changing tax laws.

Financial planning is really quite simple, simply by just following this six-step process.

Article Source: http://www.myaddirectory.com

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