What makes up a sound financial plan? The answer to this question differs depending on who you ask. Anyone can hang a shingle declaring they do financial planning; however, those dedicated to doing what’s right for their clients would likely agree that there are critical components to a SOUND financial plan. First, expertise is paramount and can either be acquired through years of experience or by obtaining the Certified Financial Planner® designation.  There are five phases in financial planning with several critical components covered in each. Here we break down what’s necessary to construct a sound financial plan for your clients.

Phase 1 – Data Gathering

Remember the adage, “Garbage In, Garbage Out?” Don’t forget it, because if your data gathering is limited, your financial plan will be as well.   Client profiling isn’t just about collecting financial data but also includes getting to know what’s truly important to your clients.   The more detailed and robust the data you can glean, the more detailed and accurate your financial plan will be.

How you obtain the data is purely preference. Some advisors like to have their clients complete a lengthy paper fact-finder. Some have enabled digital fact-finders, like the one available through eMoney 360 Pro. Our in-house financial planning expert, Frank Gambardella, prefers a conversation, “A fact-finding meeting saves clients from having to fill out a questionnaire and gives me the opportunity to ask follow-up questions on the spot that are going to help me construct a more thorough financial plan.”

Regardless of your data-gathering method, here’s what you’ll want to obtain:

• Values and Goals – What is important to your clients and what are their financial goals? This is critical. You can’t help your clients plan without knowing what their values and goals are.
• Budgets – The more detailed, the better, though many clients do not have a formalized budget. Don’t dismay; you can create a solid financial plan without a budget. If you know the client’s gross income and what they are saving, you can assume the rest is being spent.
• Assets and Ongoing Savings– You’ll want to obtain their most recent asset statements and to document what is being saved ongoing in each account. If using an asset aggregator, your plan will include the most recent account values and holdings.
• Sources of Income – Social Security income estimates, pension income, and annuity income are all sources of income you need to know more about. If they are not aware of their social security income estimate, help them set up access to their account online at the Social Security Administration website.
• Fears in Retirement – What are the client’s fears? Longevity, inflation, market timing, and withdrawal rates can all be addressed in the analysis, so understanding what their concerns are upfront is key.
• Secondary Information – Insurance policies, wills, and legal documents, real estate, and non-traditional assets are considered secondary. If your client plans on downsizing or dreams of buying a second or third home, you’ll want to know more about their real estate properties.

Phase II – Data Input

There are a lot of financial planning tools available; however, the leaders remain Money Guide Pro and eMoney. If you want our take on how they differ; read this post What Tech Does My Pure RIA Need?

You can’t maximize a tool you don’t know how to use. Data entered incorrectly can impact your analysis and recommendations, so hand the data input over to someone who is familiar with the tool or take some time to attend training, if needed.

We have a para-planners on staff who are familiar with both Money Guide Pro and eMoney, who can input your planning data.

Phase III – Modeling Solutions

This phase will either make or break the opportunity with your client. Modeling solutions are the time to demonstrate your expertise or the depth of your team’s knowledge. If you don’t have an experienced financial planner on-staff, you can outsource financial planning. We offer this service, which includes having an experienced financial planner to attend your client meetings and help you present as a team.

If you envision the analysis is completed in advance and then handing out a 30-page document to your clients, think again. “In financial planning, you are not just making a single recommendation, but several, based on a variety of different what-if scenarios,” explains Frank Gambardella. “Modeling solutions is an interactive process that requires the use of a financial planning tool while meeting with your clients. You demonstrate situations, propose solutions, and show the possible outcomes. This process demonstrates how you can be the client’s coach and help them navigate what’s possible while protecting them from what can go wrong. You can’t do this if you are relying on a paper document.”

Frank has also found that advisors who team up with a financial planner to deliver the plan, rather than going it alone with a paper document, have higher success rates. “I would estimate that the close rate is around 40 – 50% higher when financial planning is delivered in a team approach; compared to a single advisor delivering a paper financial plan.”

Phase IV – Implementation

When you are successful at modeling solutions, you move to the implementation phase of financial planning. Implementation involves having your clients put into practice your recommendations which may include any of the following and more:

• Portfolio and investment changes to take on more or less risk
• Increasing savings and/or spending less
• Changing payout options for pension plans
• Retirement planning changes such as timeliness, distributions, etc.
• Estate planning changes to either implement wills and trust documents, or make changes to existing ones.

During the implementation phase, it’s important to have an administrative assistant provide your clients with detailed to-dos and to keep clients on task by assisting them as much as possible with paperwork.

Phase V – Ongoing Monitoring and Reviewing

Life is happening every day. Markets are volatile and so are people. Financial planning is an ongoing process that requires updating whether that be quarterly, semi-annually or annually. The frequency at which you’ll re-evaluate a client’s progress depends on their life stage – whether they are in the accumulation phase, pre-retirement or retirement phase – the amount of their wealth, and the overall complexity of their plan.

The impact of financial planning is far-reaching. Ask any advisor who has been providing this service, and they will have a story to share about saving a client from a disastrous financial decision. Unfortunately, there are those who never uncover terrible choices in advance.

“I’m passionate about financial planning because I have seen first-hand what happens when you don’t have one,” explained Frank. “My father-in-law passed away suddenly upon returning from a 3-week vacation, and my in-laws had not realized how the payout option they had selected on his pension would impact their lifestyle at death.  They had zero debt, traveled the world and thought they had prepared for retirement.  This one decision has had significant long-term implications for my mother-in-law.”

Financial planning is a service, and those who are committed to delivering quality plans are doing what’s best for their clients and therefore are comfortable charging annual planning fees. Not only will you provide increased value but you will be helping your clients retire with a clearer conscience. Studies have found that those who retire without going through the planning process often times either spend more in retirement, which can lead to running out of money or they are so fearful of the unknowns, they don’t spend enough and miss out on enjoying more of their golden years.

Don’t delay in providing this valuable service to your clients. Learn more about Financial Advocates’ financial planning services or send Frank Gambardella an email.