What Is the Financial Planning Process?

Financial planning is the process of establishing personal and financial goals and creating a way to reach them. The on-going process involves taking stock of all your existing resources, developing a plan to utilize them, and systematically implementing the plan in order to achieve your short-and long-term goals. The plan must be monitored and reviewed periodically so that adjustments can be made, if necessary, to assure that it continues to move you toward your financial goals.

Let's Get Specific...

In today's fast-paced world, the demands on our time and resources can seem overwhelming. 

Comprehensive financial planning encompasses a number of critical areas, including retirement planning, estate planning, insurance, tax planning, investment management, cash management and budgeting. Depending on your needs, it may also include education funding, charitable and planned giving, trust management and long-term care planning.

Planning for your future can seem overwhelming because there are so many options to consider. However, if you start by answering five basic questions, you'll create a foundation on which to base your financial planning decisions.

First, what are your goals in areas like lifestyle, retirement, saving for college education and your health care as well as that of your dependents?

Second, when do you want to reach your goals?

Third, what steps have you already taken toward achieving your goals?

Fourth, how do you feel about taking investment risks for a potential higher rate of return?

And finally, how involved do you want to be in monitoring your progress toward your goals?

The answers to these five questions will shape the profile of your financial plan.

What is a Certified Financial Planner^TM "CFP^®" professional?

To earn the right to use the CFP^® marks, a CFP^® Practitioner must complete the following competency requirements:

• Education -- CFP^® Practitioners develop theoretical and practical financial planning knowledge by completing a comprehensive course of study at a college or university offering a financial planning curriculum, including over 100 educational institutions registered with the Certified Financial Planner Board of Standards (CFP Board).
• Examination -- CFP^® Practitioners must pass a comprehensive two-day, 10-hour CFP^® Certification Examination that tests their ability to apply their financial planning knowledge in an integrated format. Based on regularly updated research of what planners do, the CFP Board's exam covers the financial planning process, tax planning, employee benefits and retirement planning, estate planning, investment management and insurance.
• Experience -- CFP^® Practitioners must have a minimum of three years' experience counseling clients on financial matters prior to earning the CFP^® marks. As a result, CFP^® Practitioners possess financial counseling skills in addition to their financial planning knowledge.
• Ethics -- As a final step to certification, CFP^® Practitioners agree to abide by The CFP Board's Practice Standards and a strict code of professional conduct, known as the CFP Board's Code of Ethics and Professional Responsibility, that sets forth their ethical responsibilities to the public, to clients and to employers. Through the Code of Ethics, CFP^® Practitioners agree to act fairly and diligently when they provide you with financial planning advice and services, always putting your interests first. The Code of Ethics states that CFP^® Practitioners are to act with integrity, offering you professional services that are objective and based on your needs.

  All CFP^® Practitioners are required to provide you with information about their sources of compensation and conflicts of interest in writing. In addition, CFP^® Practitioners must keep personal details obtained while working with you confidential.

How do I know if I need a CFP^® Professional?

Significant changes in your life can dramatically affect your finances. You may benefit from working with a CFP^® professional if you:

• Want to assess your overall financial profile
• Have a change in marital status
• Want to start your own business or prepare a business succession plan
• Experience the death of a spouse or other close family member
• Sell a major asset such as a business or piece of highly appreciated real estate
• Want to leave a legacy to your family
• Want to plan for and enjoy retirement
• Want to diversify your investment to protect against a market decline
• Need assistance in creating a savings plan for your children's education
• Purchase a home

Financial planning is a valuable process for anyone who wants assistance in determining strategies to meet short and long-term financial goals. Plus, with the help of a financial planner you can overcome unforeseen life changes, while still working to achieve your life goals.

What questions should I ask when I interview a CFP^® Professional?

Once you have determined your primary reasons for seeking financial advice, select several financial planners to interview. You may want to ask your family, friends or other professionals you work with, such as an accountant or attorney, for references or referrals. Then, schedule a meeting with each prospective planner. Many offer an introductory meeting at no cost. Prior to the meeting, request a written disclosure document from the financial planner called a Form ADV. Once at the meeting, if you feel you need more information, don't hesitate to ask for it. And, in addition to the information you have already gathered, ask the professional if he or she would like to add any details. After all, this person will play an integral role in helping you achieve your life goals.

Following is a list of suggested questions you can ask a planner:

• What is your business philosophy?
• How long have you been practicing financial planning? What did you do prior to becoming a financial planner?
• What is your area of specialty?
• Do you have a working relationship with other professionals? Can you provide references?
• What professional affiliations do you maintain?
• How will you incorporate my particular situation into the financial planning process?
• How do you prepare a plan? How extensive is it?
• Do you personally research products you recommend?
• How often will we meet as a result of my situation?
• How are you compensated for your various services?

How are financial planners compensated?

There are several commonly accepted methods of compensation:

Fee-only: The planner is compensated entirely from fees for purposes of consultation, plan development or investment management. These fees may be charged on an hourly or project basis depending on your needs, or on a percentage of assets under management.

Commission-only: There is no charge for the planner's advice or preparation of a financial plan. Compensation is received solely from the sale of financial products you agree to purchase in order to implement financial planning recommendations.

Combination Fee/Commission: A fee is charged for consultation, advice and financial plan preparation on an hourly, project or percentage basis. In addition, the planner may receive commissions from the sale of recommended products used to implement your plan.

Fee-offset: Commissions from the sale of financial products is offset against fees charged for the planning process.

Salary: Some planners work on a salary and bonus basis for financial services firms.

In all of the above categories of compensation, you should request information on any real or potential conflicts of interest. In addition to commissions received from any financial product sales, you should ask whether there are outside incentives or bonuses to be gained by the planner for certain recommendations.

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Financial Planning Association