Financial planning is a process in which someone (let’s say, hypothetically, a Financial Planner) analyzes a person’s financial situation and goals, and makes appropriate recommendations for the person to maximize her chances of achieving those goals. There are some different ways of looking at it, but the process is fairly standard. I use the process promoted by the Certified Financial Planner Board of Standards (CFP Board).
The CFP Board is an organization that promotes professional standards in personal financial planning. The CFP Board allows individuals who meet its standards to use its CERTIFIED FINANCIAL PLANNER™ and CFP® trademarks, and call themselves a CERTIFIED FINANCIAL PLANNER™ professional, practitioner, or certificant. It is one of the larger financial planning organizations and I am currently certified to use its marks.
I first learned of the CFP Board’s financial planning process while inquiring into the organization and I currently use its six-step process with my clients. The goal of the process is to help the client get a clear picture of her current situation, define her goals, and determine what she must do to achieve her goals.
When you go to a Financial Planner for more comprehensive planning, you should make sure that she follows this general process. Obviously, if you just go to a planner to ask specific questions, this process will be abridged or modified.
The six steps include establishing the relationship, gathering data, analyzing and evaluating your financial status, developing and presenting recommendations, implementing the recommendations, and monitoring the recommendations and your progress. You can read about each of these steps in more detail in future blog posts.