According to the FPI (The Financial Planning Institute of South Africa), The Six Steps of Financial Planning are defined below. This is what you can expect when you deal with a CFP (or Certified Financial Planner).
1. Establish a professional relationship
The initial contact is dedicated to establishing a clear understanding of your immediate needs and/or concerns as well as getting a firm grasp of what services the financial planner provides. There will also be a disclosure document with the details of the financial planner and you may be asked to sign a mandate stating the terms of your engagement.
2. Gather data, including goals
Having clear goals and providing accurate financial information is key in ensuring a meaningful financial plan. You and the financial planner should mutually define your personal and financial goals, understand your timeframe for results and discuss how you feel about risk. You may be asked to complete a risk profiler or questionnaire in order to avoid exposing you to undue potential financial risk.
3. Evaluate your current financial status
With clear goals set and your financial information at hand, the financial planner is able to “draw a line in the sand” and establish where you are in relation to your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies. As your situation changes while you progress through different life cycles, it is important to revisit this step from time to time.
4. Present recommendations and alternatives
Once your financial information has been analysed, the financial planner will guide you through the various financial decisions available and make recommendations accordingly. The outcome of the plan is to ensure that you have a plan to take you forward with confidence and provide certainty regarding your financial future.
5. Implement the financial plan
Both you and the financial planner should agree on how the recommendations will be carried out. Your financial planner may carry out the recommendations or serve as your “coach,” co-ordinating the whole process with you and other professionals such as attorneys or stockbrokers.
6. Monitor the plan
You and your financial planner should agree on who will monitor your progress towards your goals. It is important that your plan and any financial solutions that were implemented are reviewed on at least an annual basis. This is done to ensure that your plan remains relevant and meaningful in light of any changes in personal or financial circumstances.
PS, what about payment?
Some financial planners ask a fee for time spent, while other earn a commission from products sold. As always, consider the source. More on this in a next article.