While creating, developing, and monitoring a financial plan, there is a set process that needs to be followed. This process is essentially the only consistent part between different financial plans. What I mean by that is the right financial decisions for one person may be completely different than another person. Everyone’s situation and financial goals are different so there is never one size fits all advice when it comes to personal finance. Everybody should have a financial plan that is developed to help them meet their specific goals given their unique circumstances. In this article, I’m going to run through the financial planning process that I believe is needed for every plan.
The financial planning process can include the following steps:
1) Understanding the client’s personal and financial circumstances. This step includes:
a. Obtaining necessary qualitative and quantitative information.
b. Analyzing information.
c. Addressing incomplete information.
2) Identifying and selecting financial goals. This step includes:
a. Identifying potential financial goals.
b. Selecting and prioritizing financial goals.
3) Analyzing the client’s current course of action and potential alternative course(s) of action. This step includes:
a. Analyzing current course of action.
b. Analyzing potential alternative courses of action.
4) Developing the financial planning recommendations. For each recommendation, we must consider the following information:
a. Assumptions and estimates used to develop the recommendations.
b. The basis for making the recommendation, including how the recommendation is designed to improve the potential to meet the client’s financial goals, the anticipated effects of the recommendation on the client’s personal and financial circumstances, and how the recommendation integrates relevant elements of the client’s personal and financial circumstances.
c. The timing and priority of the recommendation.
d. Whether the recommendation is independent or must be implemented with another recommendation.
5) Presenting the financial planning recommendations. This includes:
a. Presenting selected recommendations.
b. Presenting information that was required to be considered when developing recommendations.
6) Implementing the financial planning recommendations. This includes:
a. Addressing implementation responsibilities.
b. Identifying, analyzing, and selecting actions, products, and services.
c. Recommending actions, products, and services for implementation.
d. Selecting and implementing actions, products, and services.
7) Monitoring progress and updating. This includes:
a. Monitoring and updating responsibilities.
b. Monitoring the client’s progress.
c. Obtaining current qualitative and quantitative information.
d. Updating goals, recommendations, or implementation decisions.
That summarizes the financial planning process and what each step entails. I hope this useful for those wondering what a financial plan entails and how a financial plan is developed.
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