Financial Planning & Financial Planner is a misused term in India. Anyone who inherits a post office or life insurance business from his father attains a title of being a Financial Planner. In absence of any regulation or anyone with shallow financial knowledge can call himself or herself a financial planner. The 80-90% people in this fraternity will carry business cards with designations like “Financial Planner” or “Authorized Financial Advisor” without knowing its actual meaning. This creates confusion in minds of clients.
That’s the reason, the CFP Board recommends standard Financial Planning Process to be followed by their CFP Professionals. So every time you visit a website of true planner you will find similar 6 Step Financial Planning Process on his website. But here also you will find even fake planners are using these processes without knowing the actual facts.
So make sure you financial planner follows this 6 step financial planning process.
Financial Planning Process
1. The initial interaction and establishment of Financial Planner & Client Relationship.
- The Financial Planner will explain you the entire process. He will document the services to be provided to you and define both his and your responsibilities.
- The Planner will also disclose his remuneration and will tell how he will be paid and by whom.
- The Planner will also elaborate if he has any restrictions on his ability to give unbiased advice or if he has any conflicts of interests.
- You and the Planner should agree on how long the professional relationship should last and how decisions will be made.
2. Data Gathering & Goal Finalization
- The Financial Planner will ask for information about your financial situation. This will be your assessing your present financial condition.
- Based on the data provided, the Planner will assist you in defining your personal and financial goals, understand your time frame for results and discuss about your risk profile.
- The Financial Planner should gather all the necessary documents before giving you the advice you need.
3. Analyzing and evaluating your current financial status.
- This part is about the strategy. The Financial Planner should analyze your information to assess your current situation and determine what you must do to meet your goals.
- Depending on what services you may have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.
4. Developing and Presenting Financial Plan.
- This is step when the financial plan comes into being.
- The Financial Planner should offer Financial Planning recommendations that address your goals, based on the information provided by you.
- The Planner should go over the recommendations with you to help you understand them so that you make informed decisions.
- The Planner should also listen to your concerns and revise the plan.
5. Implementing the Recommendations of the plan.
- You and the Planner should agree on how the recommendations will be carried out.
- The Planner may carry out the recommendations or just advice, coordinating the whole process with you and other professionals.
6. Reviewing & Monitoring the Financial Planning recommendations.
- You and the Planner should agree on who will monitor your progress towards your goals.
- If the Planner is in charge of the process, he should report to you personally to review your situation and adjust the recommendations, if needed, as your life changes.
A true Financial Planner will be a process man and not a transaction machine. He will always explain the merits and demerits of all steps of that are undertaken in the Financial Planning. A faker will jump to products and make you buy one. So next time when you reach out someone or someone reaches you as a financial planner – ask him about his process. Let him speak whatever he want to say – you just compare is he on the right track.
Would you like to share your experience with your planner or advisor?