Chapter 7 The Systematic Process: Analyzing the Situation & Developing the Plan

1. Chapter 7The Systematic Process:Analyzing the Situation & Developing the Plan The Process of Financial Planning: Developing a Financial Plan Lytton, Grable & Klock 2006

2. The “Black Box” of Financial Planning + =

4. Step 3: Analyze & Evaluate the Client’s Financial Status • Three sub-steps for each core content planning area: • Step 31: Analyze the current situation • Step 32: Review prospective planning strategies • Step 33: Develop client-based recommendations

5. Step 31: Analyze the Current Situation 1. What is the client’s planning need/goal? • Known needs • Unknown, but potentially anticipated, needs • Identified by planner or client • Quantitative data • Qualitative data

6. Step 31: Analyze the Current Situation(cont’d) 2. What assumptions are relevant to the client’s planning need/goal? • Premise, reasoned conclusions, facts, circumstantial evidence • Related to • Planning products and strategies • Current or projected marketplace – tax, economic, political, legal, or regulatory environment • Client’s personal situation • Fully disclosed, mutually agreed upon, and realistic

7. Step 31: Analyze the Current Situation(cont’d) 3. Can the client’s planning need be quantified? 4. How is the planning need currently being met? • Identify and analyze products or strategies currently used • Project outcome with current approach • Project changes, if warranted

8. Step 31: Analyze the Current Situation(cont’d) • Repeat steps 1 through 4 for each core content planning area (see Figure 7.1): • Cash flow/financial situation • Income tax planning • Insurance planning (life, health, disability, LTC, property and liability) • Investment and asset management planning • Education or other special needs planning • Retirement planning • Estate planning

9. Insurance Planning: An Example • From Step 2: Data Gathering • Client’s lifestyle • Client’s occupation • Client’s medical condition or history • Impact insurance cost, availability, or need Without a comprehensive client profile, you can’t do a comprehensive job!

10. Information Available to Process • Insights to the client: the “person” and the situation – quantitative and qualitative • Who, why, for whom, what, how? • Mutually agreed upon goals and outcomes • Why, what, when, for whom? • Results for each core content planning area • Why, what , when, where, how, how much?

11. For Each Core Content Area • Quantitative data analysis • Qualitative and household needs assessment that might impact the area • Planner’s knowledge of current or potential needs • Scan of marketplace/environmental factors • Planner’s collaboration with others

12. Step 32: Review Prospective Planning Strategies • Strategies: the universe of possible solutions (see Figures 7.2 and 7.3) • Product strategies: Use of specific product or product feature to meet the planning need/goal • Procedural strategies: Focuses on a a process, service, or type of ownership to meet the planning need/goal

13. Factors Affecting Strategy & Recommendation Development

14. Step 33: Develop Client-based Recommendations Goal + Strategy(ies) + Funding + Assumptions + Planning Engagement = Client-based Recommendation • Answer the “5 Ws,” how and how much? • Challenges the advisor’s logic and consistency with the client’s goals and situations • Demands definition of funding and other implementation issues • Supports sound plan development and client motivation

15. Step 4: Develop a Comprehensive Plan & Present Recommendations • Well-designed plans have • Thoughtful analyses • Logical consistency • Thoroughness • Clarity of purpose • Feasible, client-centered recommendations

16. Developing the Plan Culmination & Integration of the Planning Cash Flow Orientation + Goal Orientation Discretionary cash flow: • Income remaining after all expenses are met • Earmarked for goal funding or product purchase

17. Developing the Plan: Cost-Benefit Options • Fully fund the most important recommendation, prioritize the others and use the remaining funds • Fund all recommendations, over a staggered time and apply “new” assets • Reconsider, “downsize,” and fund all recommendations at some level

18. Developing the Plan: Options(cont’d) • Integrate recommendations, use multi-purpose strategies • Prioritize, selectively fund, and eliminate or postpone other recommendations • Increase funding • Reduce spending • Earn more (e.g., income, liquidate assets, reallocate)

19. Alternative Funding Options

20. Developing the Plan:The Planner’s Role • Advisor • Educator • Mediator Helping the client decide about competing recommendations and available funding (discretionary cash flow, other assets)

21. When to Use a Liability Release? • When the client’s decision • Could jeopardize his/her financial future • Could jeopardize the financial credibility of the planner • Is clearly detrimental to the situation and repudiates the planner’s advice Protects the advisor from suitability or legal challenges for malpractice or malfeasance

22. Impact Analysis • Insures that the results of a recommendation are fully considered • Insures that funding is available, today and in the future • Challenges the logic and assumptions (recall professional skepticism) • See Exhibit 7.3 and 7.5

23. The Plan: Modular or Comprehensive • For each core content area • Describe the current situation • Present all recommendations for the respective section • Describe alternatives or alternative outcomes when one content area is linked with another

24. The Plan: Modular or Comprehensive(cont’d) • For each core content area • Conclude by illustrating the situation if all recommendations are implemented by recalculating • Available discretionary cash flow • Net worth • Income tax situation (over view) • Estate tax situation (over view, if applicable) • Include projections in the plan or appendix, with appropriate disclaimers

25. Presenting the Plan • Be genuinely warm, open, and welcoming • Practice being an effective communicator • Practice empathy • Make a confident, competent impression by being prepared • Involve the client

26. Presenting the Plan (cont’d) • Plan the message and anticipate the response • Motivate action with thorough, clearly defined, manageable steps • Time it right • Expect small changes • Don’t make promises

27. Thinking Outside the Box • Holistic judgments (recall problem framing) “interrelationships - everything influences everything else” • Systematic approach “repeated use of forms and protocols” • Recommendation Planning Checklist • Recommendation Form • Recommendation Impact Form

28. Thinking Outside the Box (cont’d) • Triangulation (recall professional skepticism) “multiple (typically 3) perspectives” • For example: information, stakeholders, goals

29. From Process to Practice • How are the following used by Jane? • Recommendation Planning Checklist • Planning Recommendation Form • Recommendation Impact Form • Used by Jane to communicate information to Tom and Nyla? • How would you use these forms with clients?

30. Summary • Systematic process: a standard approach for comprehensive or modular plans as well as product sales • Key to success: don’t overlook or overweight important client information • Systematic process, holistic judgment, and triangulation support professional judgment