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.
The data gathering session is one of the most important meetings you will have. This session is typical done in the home, and can takes anywhere from several hours to all day. The planner will want to inspect tax returns, bank statements, account information, retirement plans, insurance policies, trusts, wills, pensions, IRAs, investments, brokerage accounts, and other tangible bits of information.
But there's also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What's going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.
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.
Your plan will usually take three to four weeks to prepare. During this time the planner does the analysis and diagnostic work. Now that the planner knows where you are and where you want to be, he can find the most efficient path to get you there.
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.
After all the recommendations are in writing, your planner will present them to you. During the first interview, they'll present the plan to you and review the major areas. Then you'll take the plan home. Read it. Study it. Go over it with your spouse. Jot down any questions you may have about it.
You will review the plan in greater detail at your next meeting with your financial planner. At this meeting, ask your questions and make sure that the planner adequately addresses them. This meeting should be spend clarifying the details of the plan, and as each recommendation is approved, your planner will prioritize them into an "Implementation Checklist." This is simply a "To Do" list for you and your planner.
4. Financial Planning Process: Plan implementation.
The first three steps often only take around a month to accomplish.
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.
Ultimately, you may have as many as 25 - 30 different recommendations in your plan. Some will be major, broad, strategic recommendations, likely worth many multiples of the fee the planner charged. The rest of the recommendations will assist in fine-tuning your financial affairs -- crossing the T's, dotting the I's, and ensuring your finances are really in order.
5. Financial Planning Process: On-going monitoring and maintenance.
In the final step of the financial planning process, your planner should be retained to help provide periodic updates and on-going advice. You should do a couple of tax planning meetings each year, review your portfolio, update insurance, etc... You'll often find little questions that you'll want to run past your advisor. Because your planner knows your unique situation, you will be alerted to changes in conditions that directly affect your plan. - 15224
1. Financial Planning Process: Data gathering.
The data gathering session is one of the most important meetings you will have. This session is typical done in the home, and can takes anywhere from several hours to all day. The planner will want to inspect tax returns, bank statements, account information, retirement plans, insurance policies, trusts, wills, pensions, IRAs, investments, brokerage accounts, and other tangible bits of information.
But there's also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What's going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.
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.
Your plan will usually take three to four weeks to prepare. During this time the planner does the analysis and diagnostic work. Now that the planner knows where you are and where you want to be, he can find the most efficient path to get you there.
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.
After all the recommendations are in writing, your planner will present them to you. During the first interview, they'll present the plan to you and review the major areas. Then you'll take the plan home. Read it. Study it. Go over it with your spouse. Jot down any questions you may have about it.
You will review the plan in greater detail at your next meeting with your financial planner. At this meeting, ask your questions and make sure that the planner adequately addresses them. This meeting should be spend clarifying the details of the plan, and as each recommendation is approved, your planner will prioritize them into an "Implementation Checklist." This is simply a "To Do" list for you and your planner.
4. Financial Planning Process: Plan implementation.
The first three steps often only take around a month to accomplish.
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.
Ultimately, you may have as many as 25 - 30 different recommendations in your plan. Some will be major, broad, strategic recommendations, likely worth many multiples of the fee the planner charged. The rest of the recommendations will assist in fine-tuning your financial affairs -- crossing the T's, dotting the I's, and ensuring your finances are really in order.
5. Financial Planning Process: On-going monitoring and maintenance.
In the final step of the financial planning process, your planner should be retained to help provide periodic updates and on-going advice. You should do a couple of tax planning meetings each year, review your portfolio, update insurance, etc... You'll often find little questions that you'll want to run past your advisor. Because your planner knows your unique situation, you will be alerted to changes in conditions that directly affect your plan. - 15224
About the Author:
Hank Brock is president of Brock and Associates, LLC, a financial and business planning firm. Visit us for more information on the Financial Planning Process and other planning topics.
