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Aug 25

Simple Six-step Financial Planning Process

The financial planning process can be broken down into the following six steps:

1. Establishing and defining the relationship with the client

2. Gathering client data for evaluation

3. Analyzing and evaluating the client’s financial status

4. Developing and presenting financial planning recommendation(s)

5. Implementing the financial planning recommendations 6. Monitoring of the plan

The following is a more detailed insight of what happens during each step of the process.

1. Establishing and defining the relationship with the client

To go through this step, the financial planner will have to define the scope of the engagement with the client. Prior to providing any financial planning service, the financial planning practitioner and the client will have to mutually define the scope of the engagement.

Why is the necessary? The process of mutually defining (and agreeing) the scope helps to determine the type of activities that are necessary to proceed with the engagement.

This may include but not limited to

a. Identifying the services to be provided.

b. Disclosing if there is any material conflict of interest from the financial planner.

c. Disclosing the practitioner’s form of remuneration.

d. Determining the client and practitioner’s responsibilities.

This first step is necessary to establish realistic understanding for both the client and the financial planning practitioner.

2. Gathering client’s data for evaluation

This step is basically a process to find out more about the client and will cover the following areas:

a. Determining a client’s personal and financial goals and priorities.

b. Obtaining numerical and quantitative information and documents from the client.

3. Analyzing and evaluating the client’s financial situation

During this step, the financial planner takes the client’s data to thoroughly analyze them. This is to gain an understanding of the client’s financial situation and then evaluating how much of the client’s financial goals and priorities can be met by the client’s resources and current action.

4. Developing and presenting financial planning recommendation(s)

The financial planner will determine and evaluate all reasonable alternatives available for the client. He will then have to work out suitable financial planning recommendations, taking into account step (3) above. Once he has done these, he then presents it to the client. The client will then consider if the extent of the implementation of this plan.

5. Implement the financial planning recommendations

During this step, the client will have agreed on the type of recommendations or solutions to be implemented. The financial planning practitioner and the client will mutually agree on the type of services (if any at all) to be provided by the planner.

6. Regular review of the plan

This step involves monitoring and reviewing the recommendations and the client’s progress of the financial plan. It may also involve reviewing and discussing with the client on the changes (if any) in view of any changes in his personal environment as well other new situations e.g. changing tax laws.

Financial planning is really quite simple, simply by just following this six-step process.

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