1. Asses Current Situation
The financial plan clarifies the customer’s present situation
by collecting and assessing all relevant financial information, including net worth and cash
flow statements, insurance policies, investment portfolios, and other qualitative data.
Essentially this step summarizes where the client is today. An individual’s current situation is
a result of the cumulative effects of all of the financial decisions and transactions that have
occurred in the past up until the current time. It also captures the client’s expectations on
income and expenses projected till life expectancy.
2. Identify Goals and Objectives
The financial plan helps identify both financial and
personal goals and objectives as well as clarify the customer’s financial and personal values
and attitudes. These may include providing for children’s education, supporting elderly
parents or relieving immediate financial pressures which would help maintain the client’s
current lifestyle and provide for retirement. These considerations are important in determining
the best financial planning strategy.
3. Identify Problems
The financial plan identifies financial obstacles to achieving
financial independence. Problem areas can include insufficient resources to meet goals, net
deficits in cashflows due to mismatch between income and expense assumptions, too little or
too much insurance coverage, etc. The client’s projected asset levels on retirement and at the
end of life expectancy may be inadequate, or the current investments may not suffice with
changing economic times. These possible problem areas must be identified before solutions
can be found.
4. Design the Plan
The financial plan provides written recommendations and
alternative solutions. The length of the recommendations will vary with the complexity of one’s
individual situation, but they should always be structured to meet the client’s needs without
undue emphasis on purchasing certain investment products. The plan could include changing
lifestyle assumptions, altering timing and amount of significant cashflows, taking additional
loans or repaying current liabilities, asset allocation model for investing surplus funds
generated etc.
5. The Financial Proposal
The ultimate outcome of this entire process is a printed
proposal that is sent to the customer for acceptance. Once the customer confirms the
acceptance by signing on this document, the advisor and customer can work on implementing
the plan.
6. Implement the Plan
A financial plan is only helpful if the recommendations are put
into action. Implementing the right strategy will help to reach the desired goals and objectives.
7. Periodic Review
The financial planner provides periodic review and revision of the
plan to assure that the goals are achieved
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