The financial planning process involves five basic steps. After the initial meeting with your financial planner, the five steps to the financial planning process include: data gathering, plan preparation, plan presentation, plan implementation, and on-going monitoring.
1. Financial Planning Process: Data gathering.
Data gathering is a marathon. It usually takes place at your home. It may take two hours or all day. Your planner will need to examine all your documents: Tax returns. Balance sheets. Income statements. Employee benefit plan booklets. Retirement plan documents. Wills. Trusts. Insurance policies. Investment statements. Brokerage house statements. Bank statements. These are the tangible bits of information.
The tangible information is not all that is needed however. A good financial planner will want to know your lifestyle goals. When do you want to retire? What kind of income will you require upon retirement? What type of lifestyle do you want to live? Your answers will need to be calculated into the planning process. The planner must also make assumptions on the future. Where will interest rates go? What direction is the economy headed? What find of inflationary pressure will we see? Your planner needs to learn your feelings on these various assumptions.
Finally, your financial planner will determine your personal attitudes - toward taxes, risk tolerance, complexity/simplicity of your financial affairs. The primary objective of the data gather is to have a clear idea of where you are currently and where you want to head for the future.
2. Financial Planning Process: Plan preparation.
Plan preparation generally takes around three to four weeks, as the planner does analysis, diagnostics, and research. The planner will locate the most efficient path to get you to your life goals.
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.
Once your plan is prepared, your planner will schedule time to present their findings to you. During this first meeting, he’ll present the plan to you and review any major points. You’ll then take the plan home to read and study. It is important that you sit down with your spouse (if applicable) and fully examine the plan. Write down any questions that you have regarding it.
When you get back together with your planner, you’ll go over the plan in detail. They’ll answer your questions. Clarify details. As you agree on each recommendation, your planner will prioritize them into an “Implementation Check List.” It’s simply a “To Do” list for you and your planner.
4. Financial Planning Process: Plan implementation.
The first three steps move quite quickly. In fact, you will probably get through them in about a month.
The fourth step, plan implementation, takes on average five to six months (sometimes longer). During this time, you will cover topics such as tax planning, retirement planning, estate planning, and other insurance concerns. Your financial planner may want to bring in other experts at this time to consult on specific issues.
In the end, your plan might have as many as 25 recommendations. A few recommendations will be major, broad, strategic recommendations, each worth thousands of dollars to you. The remainder will be fine-tuning recommendations — crossing the T’s, dotting the I’s, and making sure your financial affairs 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.
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