6 tested and proven steps for financial planning

This write up is not giving personal advice. It is meant to provide factual information for educational purposes, and I do not know your personal circumstances and financial goals. And thus this article should not be taken as constituting professional advice. 

As an introduction I am going to ask you why you should be reading this article? Now there are two groups who may be interested. Whether you are a financial planning client or an actual financial planning advisor. 

So if you are a client or thinking about becoming a client of financial advice, it's helpful to know the process and what is happening in the background and what is going to occur when you approach the financial advisor. Financial advisors should love having well prepared clients. So you may go there with more of your eyes open once you go through this article. It will also help you assess the quality of advice you are receiving as a client. Because after all, clients should be the centre of all advice. Your typical financial advisor may just be a product salesman basically trying to make you buy anything and it does not fit into your financial circumstances or needs. A good advisor would be professional with his or his client interest as his priority. 

This article may act like a bit of refresher for either a financial planning client or advisor.

Step 1 - Collecting the client information

This is the very first thing a financial advisor will do. He/She will collect the financial and non financial data about the client. This includes information on your income, your assets, liabilities, employment status, family details etc., insurance details, retirement savings details and a whole variety of information. The better picture client can give, the more appropriate advice they can give you. Most of the financial planners use a data sheet to obtain the same.This is more or less collected in google forms. 

Step 2 - Determine the client objectives and goals

The client should list his short, medium and long term financial goals. These goals should be classified into specific requirements. For example if the client says I want to have a comfortable retirement, then the planner will have to work out what a comfortable retirement is for the client. Perhaps it is a certain level of income for the client after retirement. 

Step 3 - Perform a gap analysis to identify financial problems

Now we need to check the alignment of financial goals versus the current financial situation. Are the goals unrealistic? For example client might say, I need to buy a 3 crore villa in the next 5 years. Then the planner looks at the goal and it just may not be a realistic goal. Then this gap analysis has to be discussed with the client face to face and resolve it.

Step 4 - Developing the financial plan

This is where the planner goes ahead and works on the plan based on previous steps. The plan needs to be in depth so that the client can take an informed decision whether to proceed or not. This plan cannot be too brief or too detailed and should be free from maximum jargon. The plan includes scope of advice, background of the client, financial goals and objectives, gaps analysed and how it is going to be resolved.

Step 5 - Present the plan and implement 

Now the financial planner has to go back to the client with the fully prepared document and present the plan to the client. The advisor can answer any questions that clients have and resolve any concerns. It  is important that the clients understand the pros and cons of implementing the strategy advised. 

Step 6 - Review the plan

The planner has to provide updates on how the products and investments are performing throughout the period. The advisor has to provide updates on how the overall plan is performing and track the financial goals. Planner has to seek information about the client whether any personal circumstances have changed and accordingly review the plan.