MPF - Financial Planning Process

Financial Planning Process
Financial Planning
• Financial planning can give direction and meaning to your
clients financial decisions. It allows him to understand
how each financial decision affects other areas of finance.
• By Investing at alternatives, you will help them feel more
secure and more adaptable to life changes as they can
measure that they are moving closer to the realization of
their goals.
• Highly personalized service. It is not a product. It is a
cyclical service that constantly repeats as client needs
change over time.
Financial Planning
• Preparation and implementation of Financial planning is
a long term relationship and not a one off exercise.
• For the success of the Financial planning exercise the
prospective clients should have complete confidence in
the financial planners' capitalization.
• Confidence is building up when the financial planner can
demonstrate adequate knowledge, technical depths and
completely dependable.
• Gives two way interaction between clients and planners.
Both has responsibilities to make the exercise a success.
Planning Process
• Multi dimensional process. Planners should
have as much relevant information as possible
about the current reserves, assets and
liabilities of the clients.
• The Financial planner needs to analyze the
collected information from a number of
different aspects to develop a optimal
financial plan.
Steps in Financial Planning
• Establish client planner relationship.
• Alter clients data and determine goals and
expectations.
• Analyze clients objectives, needs a current
financial position.
• Develop appropriate strategies and foresee the
financial plan.
• Implement the Financial plan.
• Monitor the Financial plan.
A Financial Planner helps the clients to
• Organize their finances. Improve their cash flows.
• Lower their personal income taxes. Plan for their
retirement.
• Improve their investment performance. Lower
they will risk.
• Insure them appropriately and reduce insurance
costs.
• Minimize their estate settlement costs.
To achieve this, Financial Planner needs to
analyze the following questions
• What is the most intermediate decision of the client?
• What's the clients current financial situation?
• What are the clients intermediate and long term needs?
• What is the gap between the clients needs and his
financial situation?
• What service can you apply to the clients needs?
• How would the client benefit from your service portfolio?
• What is the estimated time frame to complete the plan
and accomplish the goals?
Confidentiality clauses
• Sharing of information – Financial and other
personal information that is not normally shared
with anyone else. Involves very high level of trust
between the two parties.
• Planner is under obligation to maintain utmost
confidentiality of this information. To prevent
unnecessary litigation and disputes in future.
• It is recommended that the financial planner should
enter into a bond agreement and establish the basis
of letter of engagement.
Qualitative Data
• Goals and objectives.
• Health status of clients and family members.
• Interest and hobbies.
• Expectations about employment.
• Risk tolerance level.
• Anticipated change in current/future lifestyle.
• Planning assumptions.
Interview method
• Relevant information.
• Should make financial sense to the client.
• Financial reserves now becomes a critical
information for planning.
Work on goals
• Should be specific.
• Realistic
• Memorable/Quantitative in money terms.
• Achievable within specific time period.
Planner Facilitates the goal setting process
• Enables the client to identify the goals in life including

planning, retirement, etc.
• Intended spending, Holidays, legacy, charitable
donations and lifestyle.
• Financial planning should try to assist in recognizing the
implications and unrealistic goals and objectives.
• Goals and objectives should provide focus, vision and
direction to the financial planning process.
• It is important to determine clear and reasonable
objective that are relevant to the scope of engagement.
Assess client values, attitudes and
Expectations
• Explore clients values, attitude and expectations
and time horizons as they affect the clients
goals, needs and priorities.
• This would be from the qualitative data which is
often subjective and must be interpreted by the
planner.
• The process of mutually defining is essential to
determine what activities may be necessary to
proceed with the client engagement.
Personal Values and attitudes shape the
clients goals and Objective
• Personal values and attitudes shape the clients
needs and objective as priority is placed on
them.
• Accordingly their goals and objectives must be
consistent with the clients values and
attitudes in order for the client to value the
commitment necessary to accomplish them.
Determining clients time horizon
• Once the needs of the client have been indentified they can
be converted into financial goals.
• Plot the various equating the timeline
• This in turn will give the planners a broad idea about when
and how much money the client would need during their life
in future.
• This is a key factor the planner needs to incorporate in the
utilizing of the financial plan.
• Investment time horizon would be determined as the period
from the establishment of a financial goal up to the possible
when a client would need the assets that have been invested.
Determine Clients risk tolerance Level
• Emotions play a very important role when it
comes to the decision making on investments.
• In both the cases when there is a sudden fall in
invested values leading to a market to market
less, emotions of individuals value them better
investment decisions which are not in the best
interests.
• Planners should evaluate the clients risk profile
before the financial planning is made.
Factors that affect risk tolerance of the client
• Cultural background – Past experiences related to

investing of self, family members and close friends.
• Current state of health.
• Assuming knowledge.
• Attitude towards risk and capacity to value risks.
• Attitude primarily decides risk tolerance of the client.
• Relates to clients emotional and intellectual abilities
to withstand volatility and given degree of loss.
• Risk legacy is clients financial ability to incur
risk. It can change based on clients age and
family situation.
• Other factors include stability household and
income, expenses in relation to income,
portfolio diversification, risk exposure,
adequacy of income coverage, size and
structure of household bids and contractual
commitments.

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Financial Planning Process

• Enables the client to identify the goals in life including

• Cultural background – Past experiences related to

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