Financial planning is never static, fixed, or inflexible. Instead, it’s an iterative process that requires monitoring, evaluating, and adjusting as life changes over time.
The planning process provides a foundation by which we systematically evaluate a wide range of key financial & life decisions. Planning priorities naturally shift over time, from raising a family and accumulating wealth, to managing a family business, to planning effective exit strategies or transferring wealth across generations. These planning issues require careful consideration and advanced planning with a team of seasoned experts. The first step with any planning endeavor is to organize family financial data and establish guiding principles and priorities, all of which provides valuable context and clarity for ongoing financial decisions.
There are seven key steps for a financial planner to follow throughout the financial planning process with a client. The planner must truly understand the client’s personal and financial circumstances to assist with identifying goals, analyzing the current course of action, and looking for potential alternatives. From there, the planner develops initial financial planning recommendations, presents them to the client, and helps implement the approved recommendations. The final step is to monitor the progress of the financial plan throughout the years to ensure life’s changes do not derail the success of the clients’ goals.
Let’s break down each step in the financial plan a little further.
A financial planner must analyze both the qualitative and quantitative aspects of your personal and financial circumstances. The qualitative angle includes the more open-ended questions such as your health, family circumstances, values, attitude towards finances, expectations, risk tolerance, goals, priorities, and your current course of action. Quantitative data points include your age, dependents, income, expenses, cash flow, savings, assets, liabilities, taxes, employee benefits, and insurance coverage.
Your financial planner can help facilitate goal identification, while understanding the cause and effects a particular goal may have on other outcomes. He or she can also help you select and prioritize financial planning goals. Many individuals start with many competing goals, which can be overwhelming. An important aspect of a financial planner’s work is to rank and organize those goals, balancing a realistic view while seeking to achieve the client’s wishes.
Your financial planner should analyze your current state and trajectory to determine whether you are maximizing the potential for meeting your goals. Where appropriate, your financial planner may analyze an alternative course of action, explain the advantages and disadvantages of each option, and whether each alternative helps improve the potential for meeting your goals.
A financial planner will select one or more recommendations designed to maximize the potential of meeting your goals. The recommendation may be to continue your current course of action or to chart a new course with one of the alternatives.
Your financial planner will present the selected recommendations to you, along with the information that was required to be considered when developing the recommendations. This is a collaborative and transparent process as the client should feel comfortable in questioning the outcomes of each recommendation.
A financial advisor will help implement financial planning recommendations once the client and financial planner have both agreed on which recommendations are right for their specific need. A planner may recommend actions, products, and/or services for implementation depending on your situation and needs.
Once the initial plan is put into place, an agreed upon meeting frequency is determined to update the plan and monitor its progress. While a minimum of once per year is typically recommended, some complex plans may require more frequent meetings to analyze the progress toward achieving the goals.
In crafting your goals and plan, it’s important to remember that a holistic, long-term approach works best, taking into consideration cash flow, insurance, estate planning, taxes, and potential family growth. This process, by definition, requires much broader considerations than just retirement planning.
Above all, think about financial planning as a long-term process. Rely on timeless principles to be strategic in goal setting and planning while avoiding impulsive decisions. Ultimately, your financial plan should serve you in good times and bad, regardless of market conditions. Working with your advisor to make strategic adjustments to your financial plan over time is a key component in optimizing financial decisions.