You’ve decided to engage a financial planner—smart move. But, did you know that anyone can call himself a “financial planner?” So how can you determine who is most qualified to handle your situation and what should you expect in a financial planning engagement?
You can ask for a referral from a trusted adviser or reliable friend, but you should also look for valued credentials, specifically the certified financial planner (CFP) designation. A certified financial planner is one of the most respected financial planning designations in the profession and requires a minimum of three years of experience, adherence to a strict code of ethics that mandates each CFP act as a fiduciary in every relationship, and passing a two-day 10-hour examination.
While a CFP has the education and training to offer a broad range of financial advice, it’s important to look for other personal qualities as well, such as independence, transparency, the ability to listen, and overall relationship compatibility.
You should expect a financial planning engagement to include the following six steps:
1. Establish and define the client-planner relationship. This step must be completed before any financial planning service is provided and requires that you and the planner agree on the scope of the engagement. The planner should work with you to:
- Explain services provided, the process of planning, and the required documentation
- Describe how they will be compensated
- Identify the responsibilities of the planner and the client in the relationship (discretionary vs. non-discretionary)
- Decide on the length of the engagement
- Discuss any other matters needed to define or limit the engagement’s scope
2. Data collection and establishment of financial goals. This step must be completed before any recommendations are made or implemented.
- Obtain information from you through an interview or questionnaire about financial resources and obligations
- Determine your financial goals, needs, and priorities
- Assess your values, attitudes, and expectations
- Determine your time horizon with respect to goals
- Assess your risk tolerance
- Collect applicable records and documents
3. Process and evaluate your financial status, including wills and trusts. In this step, the planner will evaluate your current financial status and analyse potential scenarios and outcomes. Each analysis should produce detailed reports that identify the strengths and weaknesses of your goals and objectives. Some examples include:
- Amount of debt (long term and short term)
- Amount of annual savings and retirement plans
- Size of emergency fund
- Standard of living (budgeting)
4. Present financial planning recommendations and alternatives. This would include current position, projections, and recommendations. During this step, the planner develops a financial plan tailored to meet your goals and objectives that aligns with your values, temperament, and risk tolerance. The plan should cover:
- Cash flow, net worth, and asset allocation reports
- Capital needs at retirement, disability, death, and other relevant situations
- Estate and income tax reports
- Investment and asset allocation reports (to include risk)
5. Implement financial planning recommendations. In this step, the planner would assist you in implementing the recommendations and would work closely with other professionals to bring the financial plan to completion.
6. Monitor the financial planning recommendations. During this step, the planner would periodically review and evaluate the financial planning recommendations in light of changes, such as:
- Income and estate tax laws
- Economic and personal circumstances
- Investment and retirement objectives
- Health or unemployment
Every successful relationship is built on trust, value, and communication—all of which are paramount when selecting a financial planner. To search for a CFP professional in your area, visit the CFP Board’s website.
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