7 Financial Planning Steps Every CFP Should Be Following
What is Financial Planning?
Financial planning is the process of creating a strategy to manage someone's financial resources in order to achieve their specific financial goals.
There are a lot of other financial planning services you can include in your process, such as estate planning, retirement planning, or tax planning.
However, the Certified Financial Planner Board of Standards, Inc defines financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances."
If you’ve passed the CFP® Certification, there are seven steps you need to follow when working with clients. These steps are included in the Practice Standards and should be followed to ensure compliance with the CFP Board's Code of Ethics and Standards of Conduct—if you, the financial planner, and your client agrees that these standards are part of your scope of engagement.
More than ensuring compliance with the standards, following these steps helps you, as a CFP professional, be more thorough in your planning process and hold up your fiduciary duties.
7 Steps for Successful Financial Planning
In this article, we’ll summarize the seven steps laid out by the CFP Board. If you’d like to get to the nitty-gritty of the process, you can read the full guide instead from the CFP Board’s website.
The seven steps, as outlined by the Board, are:
Understanding the client's personal and financial circumstances
Identifying and selecting goals
Analyzing the client's current course of action and potential alternative course(s) of action
Developing financial planning recommendations
Presenting the financial planning recommendations
Implementing the financial planning recommendation
Monitoring progress and updating
Understand the Client’s Personal and Financial Circumstances
It goes without saying that before doing any kind of financial planning or giving out recommendations, financial advisors need to have a clear picture of their client’s current financial circumstances, such as their income, spending habits, assets, and liabilities. The CFP Board requires its certified financial advisors to collect quantitative and qualitative information, analyze them, and address them if the information still feels incomplete.
There are many ways to get this information. You can do it through a face-to-face discovery meeting, or you can also ask your clients to fill out a questionnaire if you want to be more prepared for that first meeting with your clients.
Qualitative information can be about your client’s health, life values, family circumstances, risk tolerance, and priorities. Meanwhile, quantitative information includes your client’s income, expenses, cash flow, taxes, and risk capacity.
You should also ask more questions if you need more information to capture where your client currently stands financially. You can’t skip this step—it’s impossible to create a realistic plan to help your client achieve their financial goals if you don’t even know the starting line.
Identify and Choose Goals
The second step is figuring out what your client wants and what they need, financially. The outcome of this process will be their goals, put into concrete and clear terms.
It’s necessary to ask clarifying questions if their goal isn’t concrete enough. For example, you can help them write their goals in the SMART (specific, measurable, achievable, relevant, and time-based) way or ask when they’d like to achieve this goal.
Depending on your analysis of the client’s information, you should raise additional goals for your clients as well and see how they respond to them.
Once the goals are set and discussed, you need to work together with the client to prioritize which goals are more important.
Analyze the Client’s Current Course of Action
A simple way to analyze your client's current course of action is by evaluating the pros and cons of their current strategy—in relation to their chances of reaching their goals. The easiest way to start this process is by listing the pros and cons of your client’s financial strategy, then analyzing the probability of them reaching all of their targeted goals.
If they’re on track with their goals, then great! If not, then it’s your responsibility to identify potential alternative courses of action that can help your client increase their chance of meeting their targets. Discuss this with your client and let them know of each of its advantages and disadvantages.
Develop the Financial Plan Recommendations
Once you’ve analyzed your client’s current course of action, you can develop recommendations to help your client increase the chances of fulfilling their financial goals.
As a CFP professional, you must consider the following factors for each recommendation:
The assumptions and estimates used to develop the recommendations
The basis for making the recommendation
The goal the recommendation will help fulfill
The timing and priority of the recommendation
How it works with other aspects of the client’s financial plan
Whether the recommendation is independent or must be implemented with another recommendation
Present the Financial Recommendations
This step is exactly what it said on the tin. However, you’re required to present it along with the considerations you made when developing each recommendation. This will help your client make an informed decision about whether they are a good fit.
Making sure clients understand how your recommendations affect their financial situation and lifestyle is important here. At this discussion, you’ll also need to disclose any conflicts of interest you might have and ensure that you’re moving in your client’s best interests
When presenting your recommendations, you have to make sure how you present them—for example, the language and the medium you use—is appropriate to your client’s level of financial knowledge. After all, if they can’t understand what you’re talking about, they won’t be able to decide which recommendations they’d like to adopt.
Try using Asset-Map’s visual maps to help engage your clients in the conversation. A visual map helps them understand your points more intuitively—their financial situation, targets, and even how certain recommendations might affect their progress.
Implement the Financial Recommendations
Once everything is considered, selected, and reviewed, it’s time to put the plan to work. This is one of the most difficult steps in financial planning, as you are now sharing responsibilities with your clients and possibly other financial professionals, such as lawyers, investment advisors, or insurance advisors.
Like all plans, it takes both discipline and determination to put them into practice.
As a Certified Financial Planner, you are required to:
Address implementation responsibilities
Identify, analyze, and select actions, products, and services
Recommend one or more actions, products, and services for implementation
Select and implement actions, products, or services
Monitor Progress and Updates
Financial planning is an ongoing process. Things change over time, and in some cases, it can significantly hamper plans, no matter how thorough your initial plan was.
Things like major life events can shift the way your client sees the world and change their priorities. This is why you should periodically check in with your client (at appropriate intervals) to review any relevant changes that might happen and help them make adjustments when necessary.
For this step, the CFP Board requires CFP professionals to:
Establish monitoring and updating responsibilities
Monitor the clients’ progress
Obtain current qualitative and quantitative information from clients
Update goals, recommendations, or implementation decisions
Let Asset-Map Help In Your Financial Planning Process
Your client’s financial plans are a living document. Done solo, this process can be stressful and inefficient.
Imagine if you can simplify your processes so you can focus on doing what you do best — finding solutions to the roadblocks preventing your client from achieving their financial goals.
Asset-Map simplifies your discovery process, client meetings, updates, and analysis. You can get a quick understanding of your client’s financial situation and goals using an interactive visual map. You can also automate most of your busywork to focus on giving each client your full attention.
Give every client the VIP experience so they’ll keep coming back to you every time they need to tweak their financial plan.
Sign up and try Asset-Map on your own time or schedule your demo here if you want to know how others use Asset-Map to improve their client’s happiness.