What is the Financial Planning Process?
An established process keeps you more organized during financial planning. With a streamlined process, you can skip the mundane steps and focus your energy on the most important aspects of your job and wow your clients.
Following a process ensures that you’re taking all the steps necessary to create a comprehensive financial plan with your client’s best interest in mind.
Additionally, some certified professionals, such as Certified Financial Planners (CFPs), must follow certain guidelines as a requirement of their certification.
In this article, we’ll be boiling down the seven steps recommended by the Certified Financial Planner Board of Standards (CFP Board) into a streamlined five-step process.
The 5 Steps of the Financial Planning Process
To create a comprehensive plan, you’ll need a process. Here are five essential steps for the financial planning process.
1. Collect Financial Information
Before you focus on anything else, your first meeting should be dedicated to building the foundation for your client relationships.
Make sure that your client knows of any conflicts of interest you might have at this point and share any preliminary insights you currently have.
Your main goal during the first meeting with your client is to understand their objectives, both short-term and long-term goals, and their financial situation. Ask questions that would help you understand their financial life and dig deeper into what they want.
Once you’ve grasped an understanding of your client’s personal finances, you should also explain your experience, expertise, qualifications, and how you can help them achieve their financial goals.
Some things that you might need to know to help them plan would be:
Financial goals and needs
Priorities
Current financial plan
Family relationships
Earnings potential
Risk tolerance
Cash flow
Insurance coverage
Estate plans
Your plans’ effectiveness depends on how well you understand your client’s goals and financial circ*mstances, no matter how complex they are. Make sure you have all the relevant information depending on the plan you’re working on.
For example, if you’re working on a client’s retirement planning, you need to make sure that you have all of the key pieces of information, such as their annual income. savings rate, how many years until they retire, and so on.
2. Analyze Financial Information
Now that you understand your client’s goals, it’s time to take a thorough look at their current financial situation.
Start by identifying their strengths and where they might be vulnerable, as well as their needs and priorities.
At this point, you should be able to match their current financial status with their financial goals and see if what they’re doing right now will help them achieve these goals in time.
From here, you’ll figure out potential alternative courses of action that will improve their position relative to their goals.
This part sounds impossibly simple, but this is where all the complicated financial analysis comes in. This is the main reason your clients are looking for a financial advisor in the first place.
The analysis you have to do at this point might be something as simple as checking your client’s budgets and seeing if you should reallocate their assets. However, it may also include a more thorough analysis, such as determining your client’s financial state through their solvency ratio, savings ratio, liquidity ratio, or debt service ratio.
Uncertainty is part of everyday life, so as a financial advisor, you need to make sure that you factor in possible changes to the economic condition, as well as changes in the client’s life.
3. Develop a Financial Plan
Now that you have a deep understanding of your client’s current course of action, their financial situation, and where they want to be, it’s time to find out how they can move forward.
At this point, you need to point out how they can move towards their goals easier and faster. Of course, these financial planning recommendations don’t always come off the top of your head.
Develop your recommendations through financial modeling and evaluate which one would be best for your client. Don’t be afraid to lean on financial planning technology like that offered by Asset-Map to develop outstanding financial plans for your clients.
4. Select a Course of Action
When you have devised a plan, it’s time to bring your clients back into the conversation. After all, it’s their life that would be affected by the changes you’re recommending. They need to understand how your financial advice would affect their current lifestyle, the risks that come with it, why it would help them reach their goals, and, possibly, how you came into this revelation.
With that said, too many client meetings end with the clients feeling confused and unsure of an advisor’s input.
Avoid presenting your ideas in a complicated way because it’s a ‘standard’ as it may confuse your clients and lead them to make decisions they aren’t actually comfortable with.
You can distill all this complicated information and just serve them what they really want to know: Am I close to achieving my goals?
Using Target-Map helps you achieve this so you can have a productive discussion with your clients instead of just explaining minute details about how you came up with your ideas.
Of course, you still need to have the financial plan handy to make sure that you’re fully prepared down to the details. You also need to make sure that they have all the information they need to make an informed decision.
This is also your opportunity to receive feedback about your plan and tweak it to match your client’s desires and lifestyle. So they need to have a degree of understanding about how your recommendations will play out and the risks that come with them.
If you’re both on board with the plan, it’s time to guide your clients through the implementation of your recommendations.
You might even need to act as a connector between your client and all of the financial professionals, tools, and services needed to implement your recommendations. Make sure that you — and your client — know what your responsibilities are during implementation.
5. Monitor Progress
This is where your client relationship turns from a one-off conversation into an ongoing collaboration.
As a financial planner, you’ll need to regularly monitor the progress of your financial plan, keep your client in the loop, and make changes when necessary.
Know that the plan you have right now will evolve — changes happen all the time. The plan might be affected by external factors beyond your control or changes in your client’s goals or lifestyle.
Always respect your client’s financial decisions, but know how and when to advise against poor decisions when you notice them.
Streamline the Planning Process with Asset-Map
The financial planning process can be tricky to nail down. Your first few times, it’ll feel like you’re scrambling to put everything together, especially when you have so much data to keep track of.
Asset-Map helps you simplify the planning process so you can focus your energy on things that matter — like all the financial modeling you have to do to achieve a productive recommendation.
Here’s how financial advisors use Asset-Map:
Have all the data you need before your first meeting with a Discovery Interview for a frictionless onboarding experience.
Get a bird’s eye view of your client’s financial situation with a visual Asset-Map, including their income, assets, liabilities, and net worth.
Back your recommendations with a visual map of how it will help your clients reach their target with Target-Maps.
Asset-Map helps you simplify your financial planning process. See what else you can do with Asset-Map as a financial planner.
