6 Key steps of Financial Planning process

Jun 25, 2014 / Dwaipayan Bose | 170 Downloaded |  15549 Viewed | | | 4.0 |  20 votes | Rate this Article
Financial Planning article in Advisorkhoj - 6 Key steps of Financial Planning process

In our previous article, we had discussed how personal financial planning can help you meet your short term, medium term and long term financial goals. Developing an effective financial plan and executing on it, requires considerable expertise. Therefore, investors should engage with experienced financial planners or advisers in this process. There are broadly 6 steps in the financial planning process. Most certified financial planners (CFPs) and financial advisers will be very familiar with these steps in the financial planning. However, investors should remember that, while financial planners and advisers can play an important role in the financial planning process, the success of the financial plan ultimately depends on the investor. Therefore, it will be useful for investors to familiarize themselves with the process, so that they can work efficiently and effectively with their financial planners or advisers.

  • The first step of financial planning process is to define specific goals. The more specific the goals are the better. Sometimes, you may not have enough clarity about all the financial goals in your life. An expert financial planner or adviser can help you define the goals across your savings and investment lifecycle and determine the specific numbers you need to reach specific goals. You should remember that a financial plan is not working towards a singular goal, like retirement planning, children’s education, marriage etc. A financial plan includes multiple goals across your savings and investment lifecycle. However, you should establish definite time frames for the achievement of each of these goals. Even though, ideally, we would like to achieve or even exceed all our goals, it is useful to prioritize the goals, especially if there are constraints with regards to how much you can invest and save. For example, you may prioritize your child’s higher education over buying a house or some other financial goal. The financial planner will take your priority into consideration, when developing your financial plan. Once the financial goals and the priorities are determined, the financial planner or adviser will examine these goals in respect to the investor’s resources and other constraints (if any). The objective of this step is to help the clients define specific, realistic, actionable financial goals.

  • The second step in the financial planning is to collect the data regarding the investor’s income, expenses, existing fixed and financial assets, life and health insurance, lifestyle and other important factors, that will form the inputs in the investor’s financial plans. Financial planners or advisers may employ different methods to collect the data from the investors. Some financial planners or advisers may send you a survey form or questionnaire that you will have to fill out and send back to your financial planners or adviser. Many financial planners or advisers prefer face to face meetings with their clients to collect this data. Face to face meetings is often more effective than sending just sending a survey form or questionnaire. Through a face to face interaction, the financial planner or adviser can clarify certain details about their client that the questionnaire may not be able to. A face to face meeting also helps the investors clarify doubts, expectations or share additional details with their financial planners or advisers. We recommend that, the investor insists on a face to face meeting, even if his or her financial planner or adviser does not ask for one. It is always helpful for the investor. Some financial planners or advisers may send a survey form or questionnaire for the investor to fill up, and then follow it up with a face to face meeting with the investor. Whatever the method of interaction for data gathering, it is always beneficial for investors to share as much information as possible with their financial planners or advisers. Withholding financial or other important information from the financial planner or adviser is never useful. Investors should remember that the role of the financial planner or adviser is very much like a family physician. Just like, we should share all medical and health related information with our family physician, we should share all our financial information or any other information that may potentially have an impact on our financial situation with our financial planner or adviser.

  • The third step of the financial planning process is the data analysis part. The financial planner will review the investor’s financial situation, current cash flow statement, debt or loan situation, existing insurance policies (both life and non-life insurance) and other legal documents (if required). Through a structured financial analysis process, the financial planner will determine your asset allocation strategy and insurance (both life and health) needs to meet your financial objectives. The financial planner may also suggest additional life and health insurance, if he or she determines, based on the financial analysis, that you are not adequately insured. What is the investor’s responsibility at this stage? While all the work in this step is done by the financial planner, as an investor, you should also involve yourself in this process, by scheduling reviews and making sure that you understand the analysis. It is, after all, your financial plan.

  • As a next step, your financial planner or adviser will make the actual recommendation with respect to your comprehensive financial plan. This will include your asset allocation strategy, alternate investment options (e.g. mutual funds, equity investing, traditional debt products etc.), life and health insurance needs. Your financial planner or adviser will schedule a meeting with you, to discuss these recommendations. This is a very important step in the financial process for you, as a client. You should make sure that you understand all the recommendations and the reasons thereof. You should ask as many questions as you would like to, regarding each strategy or product, because they will be crucial in meeting your financial objectives. Investors should remember that the final investment decisions rest with them, and therefore they should ensure that they are comfortable with their financial plan and execution strategy. Recommendations can change during this step and altered based on the investor's inputs.

  • The penultimate step of the financial planning process is the implementation of the investor’s financial plan. This involves the actual process of purchasing the investment and insurance products. At this stage various regulatory and procedural requirements need to be fulfilled, depending on the products involved. As an investor, you may need to submit the documentation for Know Your Client (KYC), fill the application forms for mutual funds, demat and trading accounts for equity investing, and proposal forms for life insurance and Mediclaim. Your financial adviser will play a big role in fulfilling these requirements, including collecting the documents for KYC and filling out a major portion of the application or proposal forms. However, it is important, that you remained involved in the entire process. Even if you delegate the responsibility of filling the major portions application or proposal forms to your financial advisers, make sure you verify the information in the forms, to ensure nothing is incorrectly stated. You should also carefully read the brochures of the products, that you are investing in or purchasing, so that you understand all the terms and conditions of the product(s). If you do not have the time to read individual product brochures, you should make sure that, you ask the financial adviser all the pertinent questions.

  • The final step of the financial planning process is monitoring and tracking the progress made on your financial plan. You should review your financial plan, to evaluate the effect of changes in your income levels, your financial situation, your tax situation, new tax rules, new products and changes in market conditions. Normally, your financial planner or adviser will schedule meetings with you at a regular frequency, to review your portfolio and discuss if any change needs to be made in your financial plan, asset allocation strategy and product strategy. But even if your financial planner or adviser does not schedule regular meetings, you should insist on meeting with your financial planner or adviser at some regular frequency, e.g. quarterly, semi-annually, annually etc. At the end of the day, it is your financial plan and your financial aspirations that are at stake. Therefore, the onus is really on the investor, to make sure that their financial plan is on track. Also, we should remember that financial planning is not a static, but a dynamic exercise. Your financial situation, goals and aspirations may change over time. Therefore, you should meet with your financial planner or adviser on a regular basis, to ensure that your portfolio is doing well and at the same time, ensure that any change to your financial situation, goals or aspirations is appropriately reflected in your financial plan, and executed upon.


In this article, we have discussed some key broad steps in the financial planning process. You should educate yourself about these processes, and engage with an expert financial adviser, to help you prepare your financial plan and execute on it.

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