What is Financial Planning
Financial planning assists in realizing the lifelong financial goals through management of resources. Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your debt faster. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your goals. You can also adapt more easily to life changes and feel more secure that your goals are on track. The financial plan puts together a client’s profile by detailing his/her financial objectives, current income, investments, risk tolerance, expenses,, insurance coverage, retirement programs, , and other pertinent information to compose a plan that meets the client’s overall, or specific, financial agenda.
The process of financial planning can be classified in the following:
steps Step 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.
Step 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.
Step 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.
Step 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.
Step 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
Step 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.
Step 7: Periodic Review
The financial planner provides periodic review and revision of the plan to assure that the goals are achieved.
Distinctive Features of the financial plan generated by the Financial Planning module of the Private Banking include:
The Financial Planning module is designed to create comprehensive plans till the Life expectancy age of the customer. These plans will also be inclusive of plans for specific interests or financial goals identified by the customer, such as planning for retirement, buying a home, or investing an inheritance.
The projections in the plans are generated based on assumption rates defined by the user for inflation as well as for the rates of return in the different asset classes.
- The module offers a unique option of planning either for an individual customer or for the entire household of the customer. The plan generated at the household level will be a resultant of all the financial facts and projections being considered at the household level.
- The module facilitates planning for the existing as well as potential customers of the bank. However, the existing customers will have an advantage – any alteration in the investments of the existing customers in the system will be automatically updated and reflected in the plan of the customer. This will facilitate in reviewing and revising the plans with ease. However for the potential or prospective customers, the RM needs to manually update the existing exposure on investments in order to periodically review the plan.
- The user has been provided with the flexibility of creating an entirely new proposal for the customer or can also work on existing plans of the customer as a template. This will assist the user to an extent of not having to recapture some of the existing information of the customer and his financial figures. However, the user needs to note a point that all the information except the information on the current assets of the customer can be retrieved for reuse. The assets of an existing customer are refreshed from the client’s holdings as reflected in the system, even if an old proposal is being reused.
- The plans generated by the system comprise of the recommended asset allocation & the investment portfolio as well as the projected cash-flows, assets and liabilities consequential to the recommendations. The plan will also be inclusive of recommendations on additional loans or insurance covers to be taken.
- The user has been provided with the flexibility to update the status of the plan as it undergoes the various phases of conception. (eg: Work in Progress, Sent to Customer, Accepted by Customer etc).
Approach Screens
The Financial Planning process has been phased across 14 tabs. In each of the tabs has been designed to get enabled sequentially as the user proceeds to capture information from one tab to another.
However, the three tabs Inflows, Outflows and Goals will all get enabled at the same time consequent to capturing and saving of information in the Asset tab Capture Data: For the user interface fields presented in a tabular format across all the screens, the user will be able to capture or update information on the tables using a standard process.
The user needs to click on the ‘Capture Data’ button provided at the extreme right corner of each table. This will open a pop up screen which will facilitate in maintaining the relevant information.
The Planning module will be available only for RM login. It can thus be inferred that the customer cannot carry out the financial planning on his own but needs to approach the RM for the same.
