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What are the Necessary Six Steps of The Financial Planning Process?

What are the Six Steps of The Financial Planning Process?

A lot of my clients ask me about the process of financial planning. Some of my clients are not even aware that, I am a  CFPCM (CERTIFIED FINANCIAL PLANNERCM) and have to follow specific procedures. These processes are now part of my system and help in effective implementation of the financial planning process. Laid out by the FPSB (Financial Planning Standard Board of India), it gives clear guidelines on the steps involved. As a doctor, there is a Standard Operating Procedure (SOP). If you would like to know about these steps and how they help you in your financial planning, this blog is for you

Why are the steps so important?
What is the need to explain so much about this process?
Isn’t it a choice for a planner?
Why does the prospective client have to know so much?

Well, all these are important and relevant.Let’s look at the top reasons:

  1. These steps are part of the standards followed world over by the best professional financial planners.
  2. It involves a careful and intricate study of a client’s financial life. It cannot be done unless there is prior understanding by the client also.
  3. It gives freedom to the planner to observe and make interlinks.
  4. It would educate and inform the client about the processes and systems
  5. It provides options and scenario creation like “what if” for possible solutions.
  6. It is a systematic method and not any random set of steps.
  7. It brings clarity and transparency in advance of the financial planning process.
  8. It clears expectations and assumptions at the onset.

Now, you would be clear about the steps involved. Let’s take a look at these steps.

The Financial Planning process consists of the following necessary six steps:

(Credits to FPSB, as I have taken some of the points from their website)

  1. Setting up and defining the client-Planner relationship: The Financial Planner should clearly explain or document the services to be provided to you and fixed both his and your responsibilities. The Planner should explain fully how he will be paid and by whom.  The Planner should also disclose any restrictions on his ability to give unbiased advice and discover any conflicts of interests.  You and the Planner should agree on how long the professional relationship should last and how decisions will be attained. Take up all the goals and task, that your financial planner would undertake, in writing. The planner should also make an agreement, and both should sign on it.
  2. Establishing and Gathering client data, including goals: Financial Planner should ask: for information about your financial state of affairs. You and the Planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk.  The Financial Planner should gather all the necessary documents before handing you the advice you need.You may call this as a process. Like a doctor, he first makes a diagnosis, then prescribes. Financial planners have questionnaires and an online test to understand your situations in detail. These are procedures, and most professional planners have systems and such processes in place. This brings you confidence and saves you time and energy too. He would ask first for:
    1. Income of the family
    2. Expenses of all kinds of the entire family
    3. Where do you keep and invest?
    4. Your Loans and all liabilities
    5. Your Future Needs
    6. What are your financial goals (for every member)?
    7. What are family aspirations, desires and dreams?
    8. Where are the current investments lying and what are they worth?
    9. Make you understand the basics of personal finances
    10. Take you through a risk appetite test to evaluate your risk-taking ability regarding financial market understanding and investment risks of various kinds.
  3. Examining and evaluating your financial status: The Financial Planner should analyse your information to assess your current situation and find outline what you must do to meet your goals.  Depending on what services you may have asked for, this could include analysing your assets, financial obligations and cash flow, current insurance coverage, investments or tax strategies.
  4. Preparing and presenting Financial Planning recommendations and/or alternatives: The Financial Planner should offer Financial Planning recommendations that address your goals, based on the data provided by you.  The Planner should go over the recommendations with you to help you see them so that you make informed decisions. The Planner should also listen to your concerns and revise the recommendations as appropriate.
  5. Implement the Financial Planning recommendations:
    You and the Planner should agree on how the recommendations will be carried out. The Planner may carry out the recommendations or serve as your ‘coach’, coordinating the whole process with you and other professionals such as solicitors or stockbrokers.Here, your financial planner or his firm could be an Investment Advisor. This would help you in implementation and execution of your plans.
  6. Monitoring the Financial Planning recommendations: You and the Planner should agree on who will track your progress towards your goals. If the Planner is in charge of the process, she should report to you personally to review your situation and adjust the recommendations, if needed, as your life changes.

Now that you know about the steps, so go ahead and make your tryst with destiny!

You are the captain of your ship called financial life, and you have to manoeuver it. Taking the professional help of a CFPCM (CERTIFIED FINANCIAL PLANNERCM), you get your financial plan. Next, understand the implementation and execution done with the help of a Registered Investment Advisor.

So go ahead and plan your financial future. Keep no doubts. The six-step financial planning process is here to help you in this matter.

Trust your financial planner now and enjoy the journey!

Best of luck and have a pleasant financial journey ahead.




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