The financial planning process

What is a financial and investment plan?

Curtis Haigh Blog


The financial planning process

What is a financial and investment plan?  

And why would YOU need one?

Even though I am quite capable to change the oil in my truck, as I get older I find that I don’t have the time to do it on a regular basis.  Thankfully, there are people out there that do this service for a living.  The same goes for home repair – I am pretty handy and enjoy doing it, but – time.  Time is always slipping away from each of us by the day, so we need to delegate. It’s not an easy task to do either.  Why would I want a complete stranger renovating my kitchen when I could do it myself? Why would I trust a complete stranger to change the oil in my truck? The answer is easy, because they are professionals.

The same can be said for financial planning.  A professional financial planner typically has a bachelors degree in finance, or at least several designations in their preferred area of practice.

So what is a financial plan? What are the steps and just how hard is it to put one together?

The first step is finding a professional you trust.  Interview lots of financial advisors, make sure you find one that ‘connects with you’.  After all, this person is going to be responsible for developing and monitoring your plan.  Ask them how they are paid! If they dance around that subject, run away (as fast as you can).  Advisors should be transparent about their fees and give you lots of options. Many advisors will offer a compensation structure that is based on their performance, where some may just charge a flat fee.  There are lots of different types of advisors around and they all have different styles – look for credentials and pick the one that best fits your needs.

So how do we put a plan together exactly?

A financial planner or financial advisor will typically follow a strict process.  That process is as follows:

1. Establish the relationship

You will learn about the services the advisor provides and their skills and experience, what to expect from the planning process and how the advisor is paid.  You agree on your responsibilities as a client and agree on how decisions will be made

2. Gather information and set goals

To assess your current financial situation, the advisor gathers information about your net worth, cash flow, insurance coverage, wills and pension plans and all other financial areas. The advisor will then help you identify personal and professional financial goals and assess your investment risk tolerance and time frame.

3. Analyze Financial Situation

Your advisor will analyze your information and identify problems or opportunities in areas such as retirement planning, insurance coverage, investments, taxation, debt management, education planning, estate planning, or special needs such as caring for parents or disabled children.

4. Develop a formal plan

Your advisor will prepare a professional comprehensive financial plan structure to meet your needs, goals, risk tolerance and time frame.  The plan will include written recommendations and a timetable for regular reviews.

5. Implement the plan

This is the most crucial part of the planning process. A plan is only helpful is the recommendations are put into action without delay. If the plan makes sense to both the advisor and the client, implementing the strategy will help the client reach their objectives.  The advisor will help in the plan execution, or make recommendations to coordinate with other professionals.

6. Monitor the plan

Your advisor will provide regular reviews, as often as you would both like, to review and assess your progress.  Your situation changes, so your plan should be re-assessed periodically to account for changes in goals, personal circumstances, economic conditions and tax rules.