5 Essential Steps to the Financial Planning Process
There are five basic steps to the financial planning process. Your financial planner will typically want to have an initial meeting to determine the suitability of any engagement. Afterwards, there are generally five steps to the planning process: data gathering, plan preparation, plan presentation, plan implementation, and on-going monitoring.
1. Financial Planning Process: Data gathering.
The data gathering session is one of the most important meetings you will have. This session is typical done in the home, and can takes anywhere from several hours to all day. The planner will want to inspect tax returns, bank statements, account information, retirement plans, insurance policies, trusts, wills, pensions, IRAs, investments, brokerage accounts, and other tangible bits of information.
The tangible information is not all that is needed however. A good financial planner will want to know your lifestyle goals. When do you want to retire? What kind of income will you require upon retirement? What type of lifestyle do you want to live? Your answers will need to be calculated into the planning process. The planner must also make assumptions on the future. Where will interest rates go? What direction is the economy headed? What find of inflationary pressure will we see? Your planner needs to learn your feelings on these various assumptions.
Finally, your financial planner will determine your personal attitudes - toward taxes, risk tolerance, complexity/simplicity of your financial affairs. The primary objective of the data gather is to have a clear idea of where you are currently and where you want to head for the future.
2. Financial Planning Process: Plan preparation.
Plan preparation generally takes around three to four weeks, as the planner does analysis, diagnostics, and research. The planner will locate the most efficient path to get you to your life goals.
Their recommendation may come in the form of a family partnership, family corporation, family trust, etc... The planner will examine the pros and cons of each scenario, and then prepare written recommendations. Some of the recommendations will be major, while others may be simple day to day things. Properly done, all of the pieces will fit together into a strategic and complete financial plan.
3. Financial Planning Process: Plan presentation.
After all of the recommendations have been compiled into writing, the planner will sit down with your to present the plan, review any major areas. That day you'll take the plan home and study it. Read and pick it apart. As you review the plan, jot down any questions that arise.
You will review the plan in greater detail at your next meeting with your financial planner. At this meeting, ask your questions and make sure that the planner adequately addresses them. This meeting should be spend clarifying the details of the plan, and as each recommendation is approved, your planner will prioritize them into an "Implementation Checklist." This is simply a "To Do" list for you and your planner.
4. Financial Planning Process: Plan implementation.
The first three steps move quite quickly. In fact, you will probably get through them in about a month.
The next step, step four, generally takes much longer - typically around five or six months. During this period, your planner will discuss topics such as tax planning, retirement planning, estate planning, and insurance issues. Other experts, such as attorneys, may be brought in to work on specific aspects of your plan.
Ultimately, you may have as many as 25 - 30 different recommendations in your plan. Some will be major, broad, strategic recommendations, likely worth many multiples of the fee the planner charged. The rest of the recommendations will assist in fine-tuning your financial affairs -- crossing the T's, dotting the I's, and ensuring your finances are really in order.
5. Financial Planning Process: On-going monitoring and maintenance.
In the final step of the financial planning process, your planner should be retained to help provide periodic updates and on-going advice. You should do a couple of tax planning meetings each year, review your portfolio, update insurance, etc... You'll often find little questions that you'll want to run past your advisor. Because your planner knows your unique situation, you will be alerted to changes in conditions that directly affect your plan.
1. Financial Planning Process: Data gathering.
The data gathering session is one of the most important meetings you will have. This session is typical done in the home, and can takes anywhere from several hours to all day. The planner will want to inspect tax returns, bank statements, account information, retirement plans, insurance policies, trusts, wills, pensions, IRAs, investments, brokerage accounts, and other tangible bits of information.
The tangible information is not all that is needed however. A good financial planner will want to know your lifestyle goals. When do you want to retire? What kind of income will you require upon retirement? What type of lifestyle do you want to live? Your answers will need to be calculated into the planning process. The planner must also make assumptions on the future. Where will interest rates go? What direction is the economy headed? What find of inflationary pressure will we see? Your planner needs to learn your feelings on these various assumptions.
Finally, your financial planner will determine your personal attitudes - toward taxes, risk tolerance, complexity/simplicity of your financial affairs. The primary objective of the data gather is to have a clear idea of where you are currently and where you want to head for the future.
2. Financial Planning Process: Plan preparation.
Plan preparation generally takes around three to four weeks, as the planner does analysis, diagnostics, and research. The planner will locate the most efficient path to get you to your life goals.
Their recommendation may come in the form of a family partnership, family corporation, family trust, etc... The planner will examine the pros and cons of each scenario, and then prepare written recommendations. Some of the recommendations will be major, while others may be simple day to day things. Properly done, all of the pieces will fit together into a strategic and complete financial plan.
3. Financial Planning Process: Plan presentation.
After all of the recommendations have been compiled into writing, the planner will sit down with your to present the plan, review any major areas. That day you'll take the plan home and study it. Read and pick it apart. As you review the plan, jot down any questions that arise.
You will review the plan in greater detail at your next meeting with your financial planner. At this meeting, ask your questions and make sure that the planner adequately addresses them. This meeting should be spend clarifying the details of the plan, and as each recommendation is approved, your planner will prioritize them into an "Implementation Checklist." This is simply a "To Do" list for you and your planner.
4. Financial Planning Process: Plan implementation.
The first three steps move quite quickly. In fact, you will probably get through them in about a month.
The next step, step four, generally takes much longer - typically around five or six months. During this period, your planner will discuss topics such as tax planning, retirement planning, estate planning, and insurance issues. Other experts, such as attorneys, may be brought in to work on specific aspects of your plan.
Ultimately, you may have as many as 25 - 30 different recommendations in your plan. Some will be major, broad, strategic recommendations, likely worth many multiples of the fee the planner charged. The rest of the recommendations will assist in fine-tuning your financial affairs -- crossing the T's, dotting the I's, and ensuring your finances are really in order.
5. Financial Planning Process: On-going monitoring and maintenance.
In the final step of the financial planning process, your planner should be retained to help provide periodic updates and on-going advice. You should do a couple of tax planning meetings each year, review your portfolio, update insurance, etc... You'll often find little questions that you'll want to run past your advisor. Because your planner knows your unique situation, you will be alerted to changes in conditions that directly affect your plan.
About the Author:
Hank Brock is president of Brock and Associates, LLC, a financial and business planning firm. Visit us for more information on the Financial Planning Process and other planning topics.
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