5 Essential Steps to the Financial Planning Process
Excluding the initial meeting with your financial planner, there are five essential steps to the financial planning process. These five steps include: data gathering, plan preparation, plan presentation, plan implementation, and on-going monitoring.
1. Financial Planning Process: Data gathering.
The data gathering session often takes place in your home. It is a whirlwind of information, and may take the planner anywhere from 2 hours to all day to finish. The planner will want to inspect all of your documents. This includes tax returns, income statements, pensions, wills, trusts, insurance policies, investments, brokerage accounts, bank statements, retirement plans, and other tangible pieces of information.
But there's also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What's going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.
Finally, your planner will consider your personal attitudes -- toward risk tolerance, toward tax aggressiveness, toward simplicity in your financial affairs. By the time all the data is gathered, your planner has a very good idea of where you are now and where you want to be.
2. Financial Planning Process: Plan preparation.
Your plan will usually take three to four weeks to prepare. During this time the planner does the analysis and diagnostic work. Now that the planner knows where you are and where you want to be, he can find the most efficient path to get you there.
For example, maybe it's a family partnership. Or a family corporation. Or a family trust. They'll look at all the pros and cons -- then prepare written recommendations. Some will be major strategic recommendations. Others will be minor tactical recommendations. They will all fit together.
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.
When you meet with your planner again, you'll review the plan in greater detail. They'll answer any questions that you have and clarify the details. As you review and subsequently agree to each recommendation, the planner will prioritize them into your "Implementation Checklist." This becomes a simple "to do" list for you and the planner.
4. Financial Planning Process: Plan implementation.
The first three steps will likely be completed in about a month's time.
Step four, implementing the plan, takes a lot longer-usually about five or six months. During that time, you'll meet with your planner to go over tax planning, retirement planning, estate planning, and insurance issues. Your planner may bring in other experts -- such as attorneys to help resolve certain issues.
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.
The final step of the planning process is on-going monitoring and maintenance. Your planner should be retained to assist with periodic updates and on-going advice. Having closely examined your financial situation, the planner is in a unique position to alert you to changing conditions that affect your plan. A couple of time a year, the planner should be consulted on tax planning issues, portfolio review, and other related maintenance topics.
1. Financial Planning Process: Data gathering.
The data gathering session often takes place in your home. It is a whirlwind of information, and may take the planner anywhere from 2 hours to all day to finish. The planner will want to inspect all of your documents. This includes tax returns, income statements, pensions, wills, trusts, insurance policies, investments, brokerage accounts, bank statements, retirement plans, and other tangible pieces of information.
But there's also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What's going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.
Finally, your planner will consider your personal attitudes -- toward risk tolerance, toward tax aggressiveness, toward simplicity in your financial affairs. By the time all the data is gathered, your planner has a very good idea of where you are now and where you want to be.
2. Financial Planning Process: Plan preparation.
Your plan will usually take three to four weeks to prepare. During this time the planner does the analysis and diagnostic work. Now that the planner knows where you are and where you want to be, he can find the most efficient path to get you there.
For example, maybe it's a family partnership. Or a family corporation. Or a family trust. They'll look at all the pros and cons -- then prepare written recommendations. Some will be major strategic recommendations. Others will be minor tactical recommendations. They will all fit together.
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.
When you meet with your planner again, you'll review the plan in greater detail. They'll answer any questions that you have and clarify the details. As you review and subsequently agree to each recommendation, the planner will prioritize them into your "Implementation Checklist." This becomes a simple "to do" list for you and the planner.
4. Financial Planning Process: Plan implementation.
The first three steps will likely be completed in about a month's time.
Step four, implementing the plan, takes a lot longer-usually about five or six months. During that time, you'll meet with your planner to go over tax planning, retirement planning, estate planning, and insurance issues. Your planner may bring in other experts -- such as attorneys to help resolve certain issues.
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.
The final step of the planning process is on-going monitoring and maintenance. Your planner should be retained to assist with periodic updates and on-going advice. Having closely examined your financial situation, the planner is in a unique position to alert you to changing conditions that affect your plan. A couple of time a year, the planner should be consulted on tax planning issues, portfolio review, and other related maintenance topics.
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.
posted by Credit Counseling at
9:29 AM
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