Financial planning is probably one of the most future-oriented activities in which you will participate during your lifetime. Because it looks ahead to the unknown, it can also be an intimidating task. It requires you to determine where you want to be financially at different points in time in the years ahead; and then to set goals and establish strategies to get there.
In many cases the investment and insurance industries have created products to facilitate these goals and objectives. Because of this, the financial planning industry began primarily with sales professionals who distributed these products. As the profession matured, a more comprehensive financial planning process was created. Financial advisors became less sales-oriented, and more counseling-oriented.
Financial planning as a profession is relatively new, so the term can be confusing for consumers. There are no nationally prescribed standards defining what is meant by “financial planning.” However, the CFP® Board of Standards, a self-regulatory organization for the financial planning industry uses the following steps in their planning process:
1. Establish and define the client/planner relationship,
2. Gather client data including goals,
3. Analyze and evaluate the client’s financial status,
4. Develop and present financial planning recommendations and/or alternatives,
5. Implement the financial planning recommendations, and
6. Monitor the financial planning recommendations.
A comprehensive financial plan typically involves a review of at least the following broad areas of a client’s finances:
1. Current financial position
2. Retirement planning
4. Income tax planning
5. Estate planning
6. Risk management (insurance planning)
7. Education planning