Financial Planning: A 6-Step Process

1. Establishing and defining the relationship with the client

2. Gathering client data for evaluation

3. Analyzing and evaluating the client’s financial status

4. Developing and presenting the recommendation(s)

5. Implementing the recommendations

6. Monitoring of the plan

The following is a more detailed insight of what goes into each step of the process.

1. Establishing and defining the relationship with the client

To go through this step, the financial advisor will have to define the scope of the engagement with the client. Prior to providing any financial 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 practitioner’s form of compensation.d. Determining the client and practitioner’s responsibilities.

This initial step is necessary to establish realistic expectations for both the client and the practitioner.

2. Gathering Client 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 quantitative information and documents from the client.

3. Analyzing and evaluating the client’s financial status

During this step, the practitioner 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 the recommendations and solutions

The financial advisor will identify and evaluate the alternatives available for the client. He will then have to develop suitable recommendations, taking into account step (3) above. Once he has developed the recommendations, he then presents it to the client for consideration.

5. Implement the recommendations

At this stage, the client will have agreed on certain recommendations or solutions to be implemented. The financial planner and the client will mutually agree on the type of services (if any at all) to be provided by the planner.

6. Monitoring of the plan

This step involves monitoring and reviewing the recommendations and the client’s progress of the financial plan. It may also involve reviewing and discussing with the client on the changes (if any) in his personal circumstances as well other new situations e.g. changing tax laws.