Chapter 9 Developing a Product: Writing a Financial Plan

1. Chapter 9 Developing a Product:Writing a Financial Plan The Process of Financial Planning: Developing a Financial Plan Lytton, Grable & Klock 2006

2. Writing Style & Voice • Writing style: Consistently used, distinctive, personal approach to communicating in writing • Should reflect awareness of the primary information processing styles: • Visual • Auditory • Kinesthetic

3. Information Processing Style Guidelines • Visual (eyes) • Pictures, graphs, charts, and other visual aids • Auditory (ears) • Discuss, talk, review • Kinesthetic, experiential (actions) • Engage the content through web-based calculators, software simulations, “to do” list

4. Writing Style & Voice • Voice conveys an image of the writer and the message through • Author’s point of view • Author’s choice and use of pronouns • Author’s choice of active or passive verb tense

5. What Voice to Use? • A knowledgeable expert with technical expertise; • An objective professional serving as a fiduciary; • A trusted confidante and friend; • A counselor, coach, referee, challenger, or educator; • A business person or service provider with good customer relationship skills; • A trusted family friend; or • A motivator and “voice of reason” for financial issues.

6. Exploring Voice 1. Point of view • Impersonal – factual message • Personal – personalized message 2. “Person” • First person: I, me, my, we • Second person: you, your • Third person: she, he, her, him, his, they, them, their • “One” – impersonal and gender neutral

7. Objective, Subjective & Possessive Case Usage

8. Exploring Voice (cont’d) 3. Verb form • Active verb tense: Shorter, direct more forceful and personal sentences. • “Yogini purchased a $1M term policy.” • Passive verb tense: More impersonal, detached sentences. • “A $1M term policy was purchased by Yogini.”

9. As a Trusted Coach & Educator • To be more objective: • Plural possessive and use of “one” • More passive sentences • To be more informal, but personal: • Pronouns and client’s first name • More active sentences • Use a consistent voice, but don’t jolt the client between educator and coach

10. Plan Style & Format Remember, anything that can assist a client in accessing and interpreting a plan will enhance the probability that a client will buy into the ideas presented and, most importantly, ultimately implement the recommendations.

11. Rules for the Plan • Functional format with easy to read fonts, that are repeated throughout the plan • Consistency in the formatting, writing style, and voice from one plan section to another • Format to maximize the mix and impact between color and black and white • Use a plan cover that sends the right message • Check and recheck for errors, omissions, and grammar

12. Rules for the Plan (cont’d) • Each core content section within a comprehensive plan should be comprehensive • Write well, but clearly – and provide resources • Make sure the plan follows the process • Use a combination of pre-scripted and client specific information – set in the current context • Document, document, document!

13. A Well-Written Financial Plan Is: • Integrative • Realistic • Synergistic

14. A Well-Written Financial Plan Is: • Integrative: The sections link together, as do the recommendations • Realistic: Goals, analysis, and recommendations match the client –including assumptions and marketplace. Can be implemented with or without the advisor. • Synergistic: Comprehensive financial life roadmap – the “whole is worth more than the sum of the parts”

15. Components of a Plan • Plans vary with the business model of the advisor and the services, products delivered • Sequencing may vary, but all good plans include these “bones”

16. I. The Cover Page Should include: • The firm’s name and address • The planner’s name • A brief firm or planner vision statement • A phrase such as “A Comprehensive Financial Plan Prepared for [Client’s Name]” • The term “confidential” clearly indicated • Any applicable disclosure statements as required • The date of the plan

17. II. Letter to the Client • Informational message that varies with the business model of the advisor, the services/products delivered, and the client relationship. Letter may include some or all of the following: • A personal, friendly overview • An outline for the future relationship • Statement of compliance and legal disclosures • Signed and dated by the advisor

18. Personal, Friendly Overview • Reintroduce the planner/firm to the client • Restatement of commitment to goal accomplishment • Review of the planning process • Review of the planner/firm’s core values • Statement of commitment to an on-going client relationship

19. Outline For The Future Relationship • Timing of periodic reviews; • Expected client preparation for review meetings (e.g., updating client information by mail or online); • Provision of quarterly reports or other client updates; • Availability of the planner or other staff for client assistance; • Mailing of newsletters; or • Access to the firm’s other services

20. Statement Of Compliance & Legal Disclosures* • Confidentiality of client data – privacy statement • Confidentiality of planning relationship • Investment performance disclaimers • Disclaimers for confirming advice, working with other professionals *May be on a separate disclaimers page in the Introductory Materials Section

21. III. Copy of the Original Client Engagement Letter • Contractual letter signed by the client outlining responsibilities of the advisor and client • If signed earlier, then a copy rather than another original may be included in the plan • May appear at the end of the plan as confirmation for the advisor to proceed with implementation

22. Messages in the Engagement Letter • Explain the scope of the engagement and expectations for client and advisor: • Plan only, and perhaps an overview of components or scope of review • If implementation, then how, by whom, and when • Retainer or concierge services

23. Messages in the Engagement Letter (cont’d) • Disclaimers • Investment disclaimers • Tax and other legal services disclaimers • Plan, analysis limited to client providedinformation

24. IV. Table of Contents • A navigational tool that explains: • Plan organization and contents • Availability of supporting documents (analytical or educational) • Page numbers • Color coding (page numbers, tabs, etc.) if used, should improve, not hinder the navigation

25. V. Other Introductory Materials • Designed to foster client confidence, planner credibility and client commitment. May have been in other marketing materials, so may be omitted or summarized in the plan. • Mission/vision statement • Statement of principles or core values • Ethics statement • Privacy statement • Investment policy statement

26. Mission/Vision Statement • Mission: Focuses on market segment and the strengths, weaknesses of the firm to serve that target market • Vision: More global statement of the firm’s aspirations and the principles and values that govern the firm’s operation

27. Mission/Vision Should “Speak”to the Firm’s Potential Clients We strive to bring our clients financial peace of mind. Our goal is to identify optimal recommendations to help guide our clients in reaching their financial goals and objectives. We do this by building trusting, long-lasting client relationships that always focus on the best interests of our client—not our own. It is our goal to give the best guidance and advice to help our clients consistently make sound financial decisions in pursuit of their hopes and dreams.

28. Statement Of Principles Or Core Values • What does this planner/firm stand for? • Customer service • Teamwork • Professional expertise We expect a high level of customer service and satisfaction from our staff. We believe that planning through teamwork provides better service.

29. Ethics Statement • CFP Board of Standards, Inc. Code of Ethics • Integrity • Competence • Objectivity • Fairness • Confidentiality • Diligence • Professionalism • Professional association code

30. Privacy Statement • Likely provided with initial client information, may be included in the plan • May be required by law – at initiation of the business relationship and with annual updates • States policies on how data will be used, shared with other professionals with disclosure and consent, and confidentiality maintained

31. Investment Policy Statement • Signed by planner and client to establish guidelines for the appropriate and mutually agreed upon management of the client’s funds • Provides a transparent set of investment policy parameters that provide discipline for the planner and the client

32. VI. Client Profile, Summary of Goals, Assumptions • Establishes the foundation, or grounding, for the plan development • Sets the parameters, or constraints, on the planning process • Resources • Goals • Assumptions • One last opportunity for client validation

33. Client Profile • Full demographic profile, and final check for accuracy • Names, address • Employment • Ages, health status • Other pertinent information

34. Summary of Goals • Clearly defined and perhaps ranked, mutually agreed upon goals • Specific • Measurable • Attainable • Realistic • Trackable • Guide the plan and the implementation S.M.A.R.T.

35. Assumptions • Summary of all assumptions, although they may be repeated in respective sections. • Factual information about the household or other planning issues • Assumed information about the household or other planning issues

36. VII. Executive Summary or Observations & Recommendations • Purpose of the Plan • Key goals and objectives • Methods Used to Analyze the Situation • Assumptions used • Results of the Analysis • Recommendation(s) • Projected financial outcomes • Implementation Strategies for Action • Timeline for Implementation

37. How Much of the Story to Tell? • May be general or detailed – which impacts the remainder of the plan • May be organized by goals or core content planning areas • Keep a balance between the summary and the core content planning sections • “Title” of the summary and the approach should reflect the voice of the firm and the clients served

38. VIII. Individual Core Content Planning Sections • Each core content planning section should be consistently similar –establishes a “routine” for the client and the firm • Assume the client has limited knowledge, unless confirmed otherwise • Educate and motivate – don’t overwhelm! • Use text and graphics + appendices

39. VIII. Core Content Planning Sections (cont’d) • Cash Flow Analysis • Net Worth Analysis • Tax Analysis

40. VIII. Core Content Planning Sections (cont’d) • Insurance/Risk Management Analysis • Life insurance • Health and disability insurance • Long term care insurance • Property and liability insurance • Umbrella insurance • Other insurance needs

41. VIII. Core Content Planning Sections (cont’d) • Investment Analysis • Retirement Analysis • Estate Planning Analysis

42. VIII. Core Content Planning Sections (cont’d) • Specialized Analyses • Educational funding • Planning for special needs • Charitable giving • Trust management • Long-term care planning • Family business continuation • Refinancing scenarios • Saving for special objectives

43. Core Content Planning Section: An Outline I. Overview of core content area and definitions II. Restatement of planner-client assumptions III. Review of the analysis of client’s current situation • Observations about the current situation • Assessment of the planning needs • Assessment of the current planning efforts

44. Core Content Planning Section: An Outline (cont’d) • IV. State financial planning recommendations that are actionable and answer: • Who? • What? • When? • Where? • Why? • How? • How much?

45. Example Recommendation In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.

46. Example Recommendation In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.

47. Core Content Planning Section: An Outline (cont’d) V. Compare projected recommendation outcome(s) to current situation • Document the method used • Apply mutually agreed upon assumptions • Conduct a fair comparison – legitimate and conservative VI. Suggest alternative recommendations and outcome(s) where appropriate • Use the options to inform and expand the options, but don’t overwhelm

48. Graphic Comparison of Projected Outcomes

49. Core Content Planning Section: An Outline (cont’d) VII. Provide implementation and monitoring plan • Explain the source of the cash flow or assets to be used to fund the recommendation • Give specific implementation advice and establish responsibility • Tables, “to do” lists, or a timeline can be helpful to inform and motivate the client

50. IX. Implementation & Monitoring • Summarizes, integrates and prioritizesall of the strategies and actions required to implement the plan • May include narrative, tables, charts, graphs, or “to do” lists • Goals of this section: • To rank and fund the recommendations • To ensure that action occurs