Financial planner

A Financial Planner or Personal Financial Planner is a practicing professional who helps people to deal with various personal financial issues through proper planning, which includes but not limited to these major areas: tertiary education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners). The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by the financial planning process to create a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals.

Objectives

People enlist the help of a financial planner because of the complexity of knowing how to perform the following:

• Providing direction and meaning to financial decisions;
• Allowing the person to understand how each financial decision affects the other areas of finance; and
• Allowing the person to adapt more easily to life changes in order to feel more secure.

Defining personal financial decisions

Personal financial planning is broadly defined as a process of determining an individual's financial goals, purposes in life and life's priorities, and after considering his resources, risk profile and current lifestyle, to detail a balanced and realistic plan to meet those goals. The individual's goals are used as guideposts to map a course of action on 'what needs to be done' to reach those goals.

Along side the data gathering exercise, the purpose of each goal is determined to ensure that the goal is meaningful in the context of the individual's situation. Through a process of careful analysis, these goals are subjected to a reality check by considering the individual's current and future resources available to achieve them. In the process, the constraints and obstacles to these goals are noted. The information will be used later to determine if there are sufficient resources available to get to these goals, and what other things need to be considered in the process. If the resources are insufficient or absent to meet any of the goals, the particular goal will be adjusted to a more realistic level or will be replaced with a new goal.

Planning often requires consideration of self-constraints in postponing some enjoyment today for the sake of the future. To be effective, the plan should consider the individual's current lifestyle so that the 'pain' in postponing current pleasures is bearable over the term of the plan. In times where current sacrifices are involved, the plan should help ensure that the pursuit of the goal will continue. A plan should consider the importance of each goal and should prioritize each goal. Many financial plans fail because these practical points were not sufficiently considered.

Scope

Financial planning should cover all areas of the client’s financial needs and should result in the achievement of each of the client's goals. The scope of planning would usually include the following:

• Risk Management and Insurance Planning: Managing cash flow risks through sound risk management and insurance techniques;
• Investment and Planning Issues: Planning, creating and managing capital accumulation to generate future capital and cash flows for reinvestment and spending;
• Retirement Planning: Planning to ensure financial independence at retirement;
• Tax Planning: Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes;
• Estate Planning: Planning for the creation, accumulation, conservation and distribution of assets;
• Cash Flow and Liability Management: Maintaining and enhancing personal cash flows through debt and lifestyle management.

The process

The personal financial planning process is generally accepted as a six-step process as follows:

Step 1: Setting goals with the client This step (that is usually performed in conjunction with Step 2) is meant to identify where the client wants to go in terms of his finances and life.

Step 2: Gathering relevant information on the client This would include the qualitative and quantitive aspects of the client's financial and relevant non-financial situation.

Step 3: Analysing the information The information gathered is analysed so that the client's situation is properly understood. This includes determining whether there are sufficient resources to reach the client's goals and what those resources are.

Step 4: Constructing a financial plan Based on the understanding of what the client wants in the future and his current financial status, a roadmap to the client goals is drawn to facilitate the achievements of those goals.

Step 5: Implementing the strategies in the plan Guided by the financial plan, the strategies outlined in the plan are implemented using the resources allocated for the purpose.

Step 6: Monitoring implementation and reviewing the plan The implementation process is closely monitored to ensure it stays in alignment to the client's goals. Periodic reviews are undertaken to check for misalignment and changes in the client's situation. If there is any deviation or significant change to the client's situation, the strategies and goals in the financial plan are revised accordingly.

What is a financial planner's job function?

A financial planner specializes in the planning aspects of finance, in particular personal finance, as contrasted with a stock broker who is only concerned with the actual investments, or with a life insurance intermediary who advises on risk products.

Financial planning is usually a six-step process, and involves considering the client's situation from all relevant angles to produce integrated solutions. The six-step financial planning process has been adopted by the International Organization for Standardization (ISO) and the details can be obtained from the organization Financial planners are also known by the title financial advisor in some countries, although these two terms are technically not synonymous, and their roles have some functional differences.

Although there are many types of 'financial planners', the term is used largely to describe those who consider the entire financial picture of a client and then provide a comprehensive solution. To differentiate from the other types of financial planners, some planners may be called 'comprehensive' financial planners.

Other financial planners may specialize in one or more areas, such as, insurance planning and retirement planning.

Financial planning is a growing industry with projected faster than average job growth through 2014 and continues to evolve drastically.

Read 10 Myth of Financial Planning

Sign up for a complimentary consultation today and receive a free retirement check-list!Name Email