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The 6 Steps of the Financial Planning Process

August 17, 2017

There are six steps that are commonly used in the Financial Planning Process. Certified Financial Planners with the CFP® credentials generally follow these steps when developing plans for their clients. However, these steps can also be used by the individual investor as well.

1. The first step is defining what your goals will be and the relationship between you and the CFP®. The CFP® typically asks many questions to discover what you are looking to accomplish, as well as your knowledge about the process. The purpose of this step is to create a foundation and purpose for the plan with a defined goal in mind.

2. The second step is gathering and organizing financial data. This step helps the CFP® objectively identify and provide the appropriate strategies and tools to reach your goals. Relevant information includes such things as:
Risk tolerance, Time Frame, Goals, Current Savings, Current Risk Management, Family Dynamics, Experience with Financial Planners, Children and their Ages, Hobbies, etc
Providing honest information allows your CFP® to help you with organization – bringing order to your financial life and accountability – helping you prioritize and follow through on financial commitments.

3. Our third step is analyzing and evaluating your financial status. Your CFP® assesses your current situation and determines what steps must be taken to achieve goals. Depending on your needs, this assessment could include analyzing assets, liabilities, current cash flow and future cash flow, insurance coverages, tax strategies and investment allocations.

4. The fourth step is developing and recommending a proactive financial plan. Once goals and resources have been defined and analyzed, you will have a clearer picture as to whether your plan will achieve your desired goal. Perhaps you may have to increase your savings rate per month or adjust your asset allocation to better achieve your goals. Whatever course of action you and your CFP® choose, the key is for the CFP® to educate you on the strategies you will need to succeed. You will need to thoroughly understand your plan, with the CFP® providing the necessary resources to facilitate your decisions while explaining the risks of each choice.

5. Fifth is implementing the plan. Here, your CFP® and you will agree on how to proceed – either you will carry out recommendation with your CFP® as coach or the CFP® can handle implementation. This partnership between you and your CFP® will allow your professional to help you achieve the best life possible – to do this they must take the time to clearly understand the who and how of implementing the plan with the fundamental goal of making your goals achievable.

6. The final step is monitoring the plan. Just like any other plan, a financial plan will evolve over time and change according to life events. Once the plan is created, it must be monitored with an accountability partner. Marriages, divorces, career changes, children, tax law changes, inflation, stock market fluctuations, recessions and more all require newer perspectives on how best to maintain your goals.

Paul Marks CFP®, CRPS®

Jason Sims  

Van Sievers CFP®, CPA