We live in a world filled with processors and planning.
We are creatures designed to plan ahead. Think about how our digestive system works for example, even before we start eating, our nose will first pick up the scents and send a signal to our brains to prepare our saliva glands for the meal. Once food enters the mouth, the chewing process and digestive begins. Almost everything in our lives is surrounded by processors including our personal computer that we take for granted example the incredible power of a microprocessor.
The same applies to our financial planning, without proper preparations and planning we will never achieve our desired financial dreams. Planning for our finances can be a tedious effort because it involves not only our financial status but also our abstract details such as dreams and desires in life, i.e. to travel around world during retirement, starting up a new business venture or even getting married.
The 6 main processors and stages in writing a financial plan:-
1. Discovery stage:-
The most crucial stage of the process, gathering accurate financial information. This process is time consuming and requires client’s full considerations and support. Even before planners can sit down to discover the financial status of the client, there is an immediate need to establish with the client a planner-client role in making it a success. All necessary responsibilities and roles between the two parties must be spelled out in an engagement letter to seal the advisory services.
After the meeting have been set and agreed upon than a series of truthful meaningful interviews with the client can take place. By knowing each other’s roles and responsibilities, clients can be more cooperative while focusing in delivering the financial information. Apart from getting the quantitative information such as current net worth, cash flow or even investment portfolio, the most critical part of the discovery stage is capturing the abstract moments with the clients such as financial goals, dreams and wish list. It is very important for us to be able to segregate the true financial goals from desires of heart. Because planners are supposed to be client centric, we shall view the financial goals with rationality rather than emotionally attach to it. A good example would be buying a dream sport car during retirement, to the client it is a dream come thru but in the eyes of the planners, maybe a start of a financial nightmare!!
Charting down financial milestones are necessary in order to develop a plan. All short, medium and long term goals must be spelled out and discussed promptly to make the financial plan ownership belonging to the client and not based on planners suggestions. Planners are there to guide, clarify and priorities the goals set by client. A useful process to filter out, identify and rationalise the goal setting that planners commonly use is SMART. (refer diagram 1)
Analysing the financial information:-
After many tedious rounds of interviews with the client, planners will now unrevel the financial jigsaw puzzles by placing pieces together. Where pieces of financial information were not sufficient or unrealistic, planners shall refer back to client for further information. From a macro view of the clients planning, planners wil now have to narrow down the discovery, covering areas like financial risk management,life planning risk, net worth,cash flow,investment exposures,education savings,taxation, retirement needs,employment benefits,estate planning and other specific needs.Concerns on wealth accumulation as well as distribution will also surfaces and planners need to priorities which areas to address based on clients financial abilities to meet those goals and concerns.
Building the financial landscape; drafting the financial plan:-
It is said a planners role at this point is more than keying the numbers to churn out a report but to be able to write a financial plan that make sense and speaks concerns so dear to the clients hearts. It will take skills and experiences for the planners to be creative in presenting the financial plan to the client, at the same time making all those numbers speak for themselves. A report with too many pages of spread sheets will put off most clients, resulting in failure to understand the entire planning. A report needs to be as accurately reflecting current conditions, yet concised enough for the client to take home and understand. Immediate financial concerns must be address, while less pressing issues can have periodic reviews.
4. Getting consensus; Presenting the final report:-
After the first drafting, the crucial stage now is to present the drafting to the client for approval. By presenting the report in stages, the client will get to walk thru his/her financial landscape and take note of matters not reveal before to address some of the concerns affecting the planning. It is also a chance to correct any misinterpretation or mistakes on the report before final approval is acquire.
The second last stage of the planning and also decision making time too. Once all priorities and concerns are address on the final report, it is now up to the client to take necessary financial actions to implement the plan. Without making the decision, it is as good as not doing any planning in the first place, as all decisions are only on paper. Every little steps to improve once finances will take them closer to their financial dreams/goals. The objective of having to plan is to see progressive improvement in the financial status until achieving the final stages. This is almost similar to a patient who have done all the examinations and now waiting to decide on the types of medication to take. However if the patient fails to take any actions, the health may detoriate or worsen. Before the end of the meeting the client will have to decide on what needs to be addressed financially, only then planners can assist to find right solutions.
The final process; Monitoring the progress:-
The final stage of the planning process requires periodic monitoring and updates. Just like having an antivirus software, which requires updates to keep the anti virus compatible, our financial planning also requires monitoring. Personal lifestyle changes could affects once financial planning, ie death of loved ones, illness, tragic disabilities, retrenchment, marriage, divorce, new borns or even career promotions. Any challenges that comes along the way may off set initial planning done and assessment needs to be done to avoid financial losses.
Financial monitoring can be similar to piloting a plane, in this case the pilot here refers to the client taking off in a financial journey with the planner as the guide in the financial route or roadmap, the client can navigate through the rough and tough terrains with better chance of reaching the destination.
Never before a pilot flew without the assistance of the control tower, likewise don’t plan your financial on your own too. Get the help of your trusted licensed financial planner today.
This article is written by Mr. Lawrence Seow, Head of Financial Planning, VKA Wealth Planners Sdn. Bhd.