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Process of Financial Planning
Like everything else in the world, financial planning follows a particular process. The process with a financial planner follows these 6 steps:
STEP 1. Establish and define the relationship with the client
> The financial planning professional informs the client about financial planning and the financial planning professional’s competencies. Determine whether the financial planning professional can meet the client’s needs with the client and Financial planning professional and the client agree on the service to be provided. The financial planning professional describes, in writing, the scope of the engagement before any financial planning.
STEP 2. Collect the client’s information
> The financial planning professional and the client identify the client’s personal and financial objectives, needs, and priorities that are relevant to the scope of the engagement before making and/or implementing any recommendations. Also the financial planning professional collects sufficient quantitative and qualitative information and documents about the client relevant to the scope of the engagement before making and /or implementation any recommendations.
STEP 3. Analyze and access the client’s financial status
> The financial planning professional analyses the client’s information, subject to the scope of the engagement, to gain an understanding of the client’s financial situation and assess the strengths and weakness of the client’s current financial situation and compare them to the client’s objective, needs and priorities.
STEP 4. Developing the financial planning recommendations and present them to the client
> The financial professional identifies alternative strategies for achieving the clients confirmed objectives and develop the financial planning recommendation based on the selected strategies to reasonably meet the clients confirmed objectives, needs and priorities and presents the recommendation and supporting rationale in a way that allows the client to make an informed decision.
STEP 5. Implementing the client’s financial planning recommendations
> The financial planning professional and the client agree on implementation responsibilities that are consistent with the scope of the engagement, the client’s acceptance of the financial planning recommendations and financial planning professional’s ability to implement the financial planning recommendations.
STEP 6. Review the client’s situation
> The financial planning professional and client mutually define and agree on terms for reviewing and reevaluating the client’s situation to assess progress toward achievement of the objectives of the financial planning recommendations, determine if the recommendations are still appropriate, and confirm any revisions mutually considered necessary.
01. Is a financial plan unchangeable once you have established it?
Your financial status and needs are changeable according to your employment, marital status, number of children, inheritance, and death. Therefore, even a finalized investment plan should reflect changes in your living environment. Based on the management of your overall portfolio and capital demand, you should review and correct your plan regularly. Do you remember those inevitable yet unpredictable events that forced you to change your school vacation plans as a child? Even a simple plan for spending your summer vacation is succeptable to life’s unpredictability. Thus, for lifetime financial planning, overall, long-term plan reviews and changes may be inevitable.
02. Is customizing your financial plan possible?
Of course.
Not all cases of financial planning should be comprehensive. For example, if you want advice concerning your bereaved family’s financial protection after your death, preparation for your children’s educational fees or wedding expenses, or money for a real estate investment opportunity, a competent financial planner such as a CFP certificant can give advice appropriate to your special needs. Note that all financial items (investments, insurance, taxes, and so on) are closely related to each other. As a result, your special needs can be handled in consideration of your overall financial status.
03. Does financial planning require consultation with a professional at all times?
You can carry out financial planning by yourself.
But just think about this: Suppose you are involved in a lawsuit. Do you want to receive help from a lawyer or deal with the situation yourself? You know your own ability better than anyone and if you possess the proper level of intellect, you can prepare a lawsuit on your own. Still, the reason people turn to a lawyer is that considerable time and professional expertise are necessary for proper preparation. You will also benefit greatly if a professional lawyer judges the situation objectively and gives you sound advice. Besides, if you handle a sensitive problem yourself and make a mistake, you may likely sustain heavy losses. The same is true with financial planning. Anyone can carry out their own financial planning; to do so properly, however, the help of a financial planner is essential. These days, in the financial market, many complex and varied products are being produced. Interest rates, stock prices, and exchange rates are also changing constantly. Thus, effective financial planning requires sufficient time and knowledge; the same holds true for continuous planning and review. In other words, there is a limit to people assessing the own financial situation and collecting and analyzing all the information necessary to carry out a financial plan by themselves.
04. What if you carry out your own financial planning?
If you carry out your own financial planning without the advice of a reliable expert, the following problems may arise:
You are unable to collect and analyze sufficient information properly
Today’s financial environment has become more complex than ever before. Good financial planning requires consideration of legal matters concerning changes in various financial products, financial situations, and tax and inheritance laws, as well as in varying insurance guarantees, and changes in commodity prices, education fees, investment risks, and earning rates.
Since financial planning takes so much time, doing it yourself may have negative effects
Given insufficient knowledge and experience, if we try to process all of the information necessary for financial planning ourselves, we will end up spending far too much time. As a result, the development of our individual competency will be hampered, or our manner of living may be affected, thus preventing the comfortable life we originally intended to realize through financial planning in the first place.
Establishing an objective plan is difficult
Financial planning is a realistic way to realize your life’s objectives. But for a plan to become a reality, the help of a third party who conducts an objective evaluation based on extensive experience is essential.
Establishing an accumulative, organized plan is difficult
The financial factors for realizing your life’s objectives (investments, insurance coverage, limiting your tax burden, planning for your estate, and so on) are related closely to each other. If we try to adjust these factors alone, we cannot see fully our own financial status. As a result, we may only make the situation more complex by concentrating only on certain needs, while neglecting others.
Understanding Financial Planning
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What is Financial Planning?
Understanding Financial Planning
Process of Financial Planning
Choosing a Financial Planner
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