Guidelines to Financial Planning
Financial planning can be described as the process of
meeting a client's life goals through the proper management of their finances.
Life goals can include buying a home, saving for children's education or
planning for retirement.
The financial planning process consists of six steps that
help the financial adviser to take a big picture look at where the client is
financially. Using these six steps, the financial adviser can work out where
their client is at the moment, what the client may need in the future and what
the client must do to reach their goals.
The process involves gathering relevant financial
information, setting life goals, examining a client's current financial status
and coming up with a strategy or plan for how the client can meet their goals,
given their individual personal situation and future plans.
The Financial Planning Process
The financial planning process consists of the following six
steps as described below. It is so much more important and relevant in light of
the Proposed financial Advisory and Intermediary Services Bill 2000.
1. Establishing and defining the client-planner relationship:
The financial planner should clearly explain or document the
services to be provider to the client and define both his and the client's
responsibilities. The financial planner should explain fully how he will be
paid and by whom. The financial planner and the client should agree on how long
the professional relationship should last and on how decisions will be made.
2. Gathering client data, including goals:
The financial planner should ask for comprehensive
information about the client's financial situation. The financial planner and
the client should mutually define the personal and financial goals of the
client, understand the client's time frame for results and discuss the client's
risk profile and risk tolerance. The financial planner should gather all the
necessary documents before providing the client with advice.
3. Analysing and evaluating the client's financial status:
The financial planner should analyse the client's
information to assess the client's current situation and determine what the
client must do to meet their goals. Depending on what services the client has
asked for, this could include analysing the client's assests, liabilities and
cash flow, current insurance coverage, investments or tax strategies.
4. Developing and presenting financial planning recommendations
The financial planner should offer financial planning
recommendations that address the client's goals, based on the information
provided by the client. The financial planner should go over the
recommendations with the client to help the client understand them, so that the
client can make informed decisions. The financial planner should also listen to
the client's concerns and revise the recommendations as appropriate.
5. Implementing the financial planning recommendations:
The financial planner and the client should agree on how the
recommendations will be carried out. The planner may carry out the
recommendations or serve as a coach to the client, co-ordianting the whole
process with the client and other professionals such as an insurance agent,
investment adviser, attorneys or stockbrokers.
6. Monitoring the financial planning recommendations:
The financial planner and the client should agree on who
will monitor the client's situation and adjust the recommendations, if needed,
as circumstance require.
Examples of personal risks and needs that you as client my
The risks that we all face are:
- dying too soon
- living too long (old age)
- becoming disabled
- becoming ill
- the eroding of our wealth
- life hazards and
- property hazards
From the above risks, the following needs develop:
- the need for capital
- the need for income
- the need for health care and
- the need for the best financial advice
When we evaluate needs, we will ask the following questions:
- Is the need permanent, temporary or a future need?
- Is the need constant or is it increasing?
- Is it a capital or income need?
When the financial planner has correctly established the
objectives and needs of a client, he/she has to evaluate all the information in
terms of affordability and the client's risk profile. The client will then be
presented with solutions.
The solutions to personal needs
The solutions can include:
- life cover
- disability cover
- health care
- short-term savings
- medium-term savings
- long-term savings and
- an investment spread
The products may include:
- unit trusts
- retirement annuities
- medical schemes
- life insurance
- short-term insurance
- hard assets
- money market investment and
- health insurance
Tax laws will always influence your decision. You need a
thorough knowledge of income tax and estate duties to guide your planning.
The scope of personal financial planning
Depending on a client's specific circumstances, personal
financial planning usually covers the following areas:
- investment planning
- retirement planning and
- estate planning
The purpose of Financial Planning
The purpose of personal financial planning is to:
- optimize the estate of a client
- make sure that the maximum available assets will be
transferred to the client's descendants and
- create wealth in the most efficient way.
In order to draw up the best financial plan for a client, a
financial planner has to consider the following factors:
- investment vehicles and
- the risk profile of the client.