The Financial Planning Process The Foundation of Professional Financial Planning

1. The Financial Planning ProcessThe Foundation of Professional Financial Planning The financial planning process is a systematic way to manage the financial resources of the client to help the client achieve needs, goals and desires in a manner consistent with client values.

2. The Financial Planning Process The financial planning process consists of disciplined steps: Tools and Techniques lists six steps; The CFP Board of Standards also lists six; Other authors list five, six or more. However, all the versions reflect the same strategic management concepts.

3. Two Views of the Financial Planning Process

4. Establish & Define the Client-Planner Relationship • The CFP Board of Standards recommends that the client-planner relationship be defined in writing. • Careful disclosure of all relevant information and a client signature of agreement and understanding protects both the client and the planner. www.cfp.net/learn/knowledgebase.asp?id=2 www.cfp.net/learn/ethicsforms.asp

5. DEVELOP FINANCIAL PLANS: Budget Income & Expenditures Forecast Financial Positions Determine Financial Media CONTROL & EXECUTE PLANS: Select Specific Financial Instruments Appraise Activity Construct Financial Portfolio MEASURE PERFORMANCE ACCEPTABLEUNACCEPTABLE Hold Steady Until Reconsider Objectives Next Measurement & Revise Plans ATTAIN OBJECTIVES END START ESTABLISH RELATIONSHIP Agree to Meet Clarify Planner and Client Responsibilities Provide ADV BACKGROUND ANALYSIS: Financial Position Income and Expenditures Demographics Risk Attitudes ESTABLISH OBJECTIVES Financial Terms Priorities Time Horizons Financial Management Model

6. Establish the Relationship • Client and planner agree to meet • Outline the responsibilities of both the planner and the client • Conflicts of interest, compensation arrangements, length of agreement period, and products and services to be provided disclosed and agreed upon

7. Gathering Background Information • This step is sometimes combined with setting goals. • The better the job you do in this stage, the better plan you will produce. • Identifying the client’s riskpreference is particularly important.

8. Gathering Background Information Details • Comprehensive Financial Information • Record of Income & Expenditures • Statement of Financial Position • Personal Parameters • Age, sex, health • Lifestyle & Tastes • Attitudes toward risk • Feelings about Financial Security • Independence • Investment risk Some clients don’t keep very good records, leaving the financial planner to straighten it out.

9. Establishing Financial Objectives • Goals must be clearly stated. • Goals MUST be quantified. • Goals must be rated according to priority. • Not every goal will be reachable.

10. Establishing Financial ObjectivesAreas to Address • Standard of Living • Savings • Protection • Accumulation (Investment) • Financial Independence (Retirement) • Estate Planning No matter how good an analyst you may be, you will not succeed as a financial planner if you cannot communicate well with the client. Put yourself in the client’s shoes and really LISTEN to what he or she has to say.

11. Developing Financial Plans There are three sub-steps to developing financial plans: • Analysis • Development • Presentation The CFP Board breaks this step down into two steps: • Analyzing and evaluating the client’s financial status. • Developing and presenting financial planning recommendations and/or alternatives.

12. Developing Financial Plans - Analysis • Budgeting for near term • Projection of client’s financial position after next several years • Identification of strengths and weaknesses • Identification of external threats and opportunities

13. Developing Financial Plans - Development • Develop strategies based on SWOT analysis • Identify financial instruments for these strategies and savings media for emergency fund • Appropriate types of investments • Appropriate insurance Note: Financial planning is much more than investment advice. You may find yourself investigating strategies concerning career decisions and health care and provisions for dependents. The client has hired you to be the CFO of their personal enterprise.

14. Developing Financial Plans - Presentation • This is the “What you need to do” part of the report. The quality of your presentation can determine whether or not the client will execute the plan • Present the plan from the client’s point of view • What will it accomplish for the client? • What are the consequences of notexecuting the strategy? • What will be the client’s responsibility and what will you do for them? • Big books do not make good financial plans – clear reports do. At this stage, you need to get the client’s consent to execute the plan.

15. Controlling & Executing Plans • Set the plan in action. • Purchase or sale of assets • Purchase or replacement of insurance • Changes in lifestyle Closely monitor the execution to be effective in accomplishing the client’s objectives.

16. Measuring Performance – Monitoring the Plan • Is the client making progress toward their goals? • If results are acceptable, continue • If performance is not on track, reevaluate the plan. It may be necessary to revise some goals as being unrealistic in the external environment. • You may have to create an entire new plan.