How the Financial Planning Process Creates Change
Our blog exchange continues and this month we have a blog from Rich Feight, CFP®, EA.
As the financial planning industry transitions into a Fiduciary standard of advice for retirement accounts the financial planning process will become more and more important. It’s important to understand that it’s a process and not a transaction. In other words, financial planning is something you enter into with a desired goal, and come out of the other side with expectations of meeting those goals. Of course, like any good process, it’s something you constantly must update and correct. Let’s take a deep dive into the financial planning process.
According to the CFP Board, the financial planning process or “Practice Standards” is a six step process that includes:
- Establish a relationship with professional
- Have that professional gather data and goals
- Analyzing and evaluating your financial status
- Review the recommendations
- Set a course – for implementation
- Monitor or benchmark your progress against your goals.
Step 1 ESTABLISH A RELATIONSHIP WITH A CFP® PROFESSIONAL. This is where the financial planner explains their services and your responsibilities. You’ll discuss how long the relationship will last, who makes decisions and how, and there should be complete transparency around compensation.
Step 2 is where your CFP Professional GATHERs YOUR DATA AND DEVELOP YOUR GOALS. In other words, where are you now, and where do you want to be? It’s a good idea to discuss your comfort level around financial risks as well so any proposal the planning professional makes is within your tolerance levels.
Step 3 is to ANALYZE AND EVALUATE YOUR FINANCIAL situation or STATUS. This is where the planner crunches numbers. They consider all aspects of your personal situation to figure out what you need to do to meet your goals.
This is where a comprehensive financial planner distinguish themselves from product sellers, or guys only looking to manage your investments, or sell you insurance. A good comprehensive financial planner will look at your whole situation, including tax, investment, planning, risk, and estate needs. They may even offer to analyze your cash flow to find out where you’re focusing your money, and if it coincides with your goals.
During step 4, you and YOUR CFP® PROFESSIONAL review their RECOMMENDATIONS explaining their rationale so you can make conscious decisions. Do you diversify from your company stock and take the tax hit? Or do you continue to expose yourself to single stock risk? A good planner will listen to concerns, offer options, and revise recommendations to satisfy your concerns.
Step 5 is to SET YOUR COURSE. You and the planner decide on who’s going to implement the recommendations. Your planner may carry out the recommendations or serve as your coach, coordinating the process with you and other professionals, like attorneys and insurance agents.
Step 6 is to MONITOR your PROGRESS. The CFP Board calls this BENCHMARKing YOUR PROGRESS AGAINST THE FINANCIAL GOALS YOU ESTABLISHED. As you work toward your goals, you and your planner need to decide who will monitor your progress to make sure you’re staying on track. If the planner is in charge, he or she will update your plan and make adjustments as needed.
You can learn more about the Financial Planning Process at www.letsmakeaplan.org/.
What do I love about the financial planning process?
I love that it has the ability make real change in your life. I’ve seen it improve clients’ quality of life mentally, physically, and emotionally.
For example, you may worry (emotional) about whether you’re saving enough for retirement. You decided to seek a CFP professional to better understand what you need to do in order to get on track for retirement. He or she analyzes your situation and makes recommendations. Once you understand these recommendations (mental), you can consciously choose to implement (physical) these changes.
Implementation can be as simple as contacting your HR to adjust your 401k savings and allocate your investments. Then you’re good until you have another worry or concern.
If your CFP® professional implements and monitors your situation annually, you’ll know exactly where you stand with your retirement goal every time you update your plan. You no longer have to worry. You can focus your energy and thoughts on enjoying things you love to do like travel, exercising, spending time with family, or if you’re like me, golfing. That’s where real transformation begins, financially speaking. Your focus shifts from money to life.
If you want to experience change with your finances using the financial planning process I’d suggest you ask Michael Garry at Yardley Wealth Management or look for a fee-only Certified Financial Planner at www.letsmakeaplan.org or www.findanadvisor.org.
About the Author
Rich Feight, CFP®, EA is a fee-only Certified Financial Planner® and Professional NAPFA-Registered Financial Advisor at IAM Financial in East Lansing and Grand Rapids Michigan with 20 years of experience helping self-employed business owners and professionals organize their finances so they can retire on time. He blogs at www.thinkingbeyondnumbers.com.
