6 easy steps for processing financial planning!!!

Hi everyone!!

I am back with my new blog on 6 easy steps for processing financial planning!!! As I have already mentioned about the financial planning and its importance in my previous blogs. A person should always have to be prepared for every financial circumstance in life. Today I will share how financial planners process your financial planning in 6 easy steps. you can also make your own financial planning with the help of below steps. Additionally, I have also included some letters, forms and tasks excel which help you for making your plan more adequately.

1. Establishing and dealing with the client - planner relationship.

Client and planner should mutually agree with the scope of the engagement. Both client and planner should willingly and able to perform the services requested i.e planner should not make any decisions without the client's consent. The service should be warranted and appropriated. It also defines "Mutually acceptance" about -

(1) Identifying the services, 

(2) Disclosing the financial planner's compensation, 

(3) Determining the responsibilities of Client and planner, 

(4) Establishing the duration of client and planner, 

(5) Providing additional information to achieve the goals.

The service agreement should be made in writing known as "Letter of engagement". 

Letter of engagement

In this letter, it is clear mention of the services provided by planner, fees charged, planner's information Etc. The client can consult with a lawyer to cross-check the standards and regulations prescribed. The letter should be signed and dated by the client after it accepts the terms and conditions. The copy should be kept to both client and planner. If a planner is selling any investment products it also signs and provide the disclosure to the client like the reference to a prospectus and urge preferred securities dealer relationships, front end load versus back end load versus no trailer fees, sales inventive limitations, referral fees, GIC commissions, LIC commissions Etc. 

2. Gathering the client data including financial goals.

Gathering the client's data helps the planner to understand its goals, also it helps to plot the financial planning accordingly. There are two methods of data gathering.

Frist is Quantitative Data it is based on "Hard" questions like basic family information, Assets and liabilities information, Cash inflows and outflows, Insurance policies details, Client's any investments details,  Retirement Benefits and any will or Trust.

Second is Qualitative Data it is based on "Soft" questions like basic goals and objectives, the Health status of family members, any interests and Hobbies, Expectations about employment, Risk appetite, anticipated changes in current or future lifestyle. 

Sample Data gathering Form

*Note - Planner should confirm that Quantitative data provided by the client is correct and adequate, also the qualitative data should be appropriate not any personalized information. 

After gathering the data planner should construct the financial statements i.e Net worth statement and Cash flow statement to know the client's current financial situation and behaviour towards finance.

3. Setting up the financial goals.

The most important thing in financial planning is setting up the client financial goals, without goals financial planning would be like aimless bow and arrow. There are many important and initiative characteristics of Financial planning which make it "SMART" in setting up the goals.

S - Specific: The goal should be specific, not a general one. It should not make any distractions in financial planning. for example "I want to have a tour", is a general goal it is not a specific goal but if one has a goal such like "I want a London trip within 2 years not exceeding 2 lakhs". The goal that specifies the minutely help to in financial planning most accurately.

M - Measurable: The goal should be measurable in terms of money and time. For example " I want to have a tour" it does not show that when to have a tour, how much it would cost to me, Etc. It helps the client to for savings periodically. 

A - Achievable: The goals should be realistic and also it should be achievable. The major problems with clients that is the desire to have an unrealistic goal thinking that financial planner will make such strategies as alike magician. If you save 2500pm with a desire to have a trip to London with 2 years which is not possible.

R - Relevant: Some people desire to become doctor, for which they have to pass the medical exams but once they became sustain with enthusiastic energy because they, in reality, they don't wish to be a doctor. Similarly, the client also should know about the desired goals and consult with a planner for same and prioritise the relevant goals first.

 

T - Timely: Timeline is the blood of financial planning. The difference between the desire the goals and to successfully achieve them is called the Time. Every plan, every strategy change periodically to match the with situations at that time which should not affect the goals negatively or be delayed. Every planner always advises its client for best returns in optimistic time. 

4. Analyze clients' financial status and risk planning.

Planners review the data provided by the client both qualitative data and quantitative data. It identifies the client's financial strength and weak points, also it suggests the client were to take immediate actions for investing or preventing them from unnecessary and unusual expenses. The planner takes the clients test based on data provided to know the risk appetite and makes the plans accordingly. When available resources are compared to the client's objectives, it may be necessary to modify the priority of objectives, the objectives themselves, or the client's attitude about his or her current lifestyle and/or available resources.

5. Developing, Presenting and Implementing the financial planning recommendations.

In this stage, the planner identifies appropriate techniques for achieving clients objectives in light of the economic environment. Second, the planner selects alternative investments within those categories, exercising appropriate care. A similar selection process is used identifying appropriate insurance products, tax strategies, retirement plans and estate planning techniques. the financial planner further evaluates alternative solutions and develops an integrated set of recommendations to meet client goals. Frequently, a schedule for implementing recommendations is developed and incorporated into the financial planning recommendations. These recommendations then are presented to the client, usually in writing. It is possible that even at this stage of the process, clients objectives may be subject to reordering or change. In this stage, it is critical to adequately address the qualitative data. Regardless of what recommendations the quantitative data may indicate, if the client perceives that the answers to the soft questions have not been adequately addressed, the next stage is likely to be an exercise in futility.

After the planning development and presentations, the planner should implement the plan, using the assistance of the other professional as needed. The planner's role in coordinating the activities of the client and other advisors is critical. without implementation, the plan has no value.

6. Monitoring the financial planning recommendations.

At some point earlier in the planning process, the planner established a client file and a system for periodic review and revision. The planner monitors the performance of investments, changes of tax and the economic environment. in additions, the planners consider additional financial products and strategies for the possible inclusion in the client's plan. At regularly scheduled reviews with the client, the planner evaluates the implemented financial planning recommendations for the changes in the client's situation. The client's objectives, health status, income, risk appetite, or other personal circumstances may have changed. If this is the case, the planner returns to early stages of the process, re-evaluating goals and gathering additional data, to make recommendations that meet the client's new requirement. When changes in the economy, tax laws, investment landscape or the other issues arise that are likely to affect the client's financial situation, the planner should let the client know that the implemented financial planning recommendations are being monitored.

So, This was the six easy steps to prepare financial planning. You can make the plans by your self. Below I have posted the link of the task for all of to check your own risk appetite. 

Risk Profiling Test 

If your risk category is a conservative risk, then you are mostly dependent on the fixed asset like inventing in real estate or believing in fixed salary, you are not willing to take more risk. If you are risk category is aggressive then you are mostly believing to invest your money in high risk for returns. 

We will see in the next blog on Overview of financial markets.

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