Around the world, financial planners use a six-step process that helps them determine where the person stands financially. Using these six steps, one can work out where he is now, what he may need in future and what he must do to reach his goals.
Step-1: Establishing and defining the client-planner relationship:
The financial planner and the client establish a relation and scope of engagement is defined. There is also an understanding between the client and the planner about the services to be provided, and the compensation to be received by the planner.
Step-2: Data gathering and goal setting:
The financial planner gathers information about the client’s financial situation. The client and the planner discuss various financial goals and objectives. The financial planner then gathers the necessary data and gives advice according to the client’s risk appetite.
Step-3: Identification of financial problems:
The planner analyses the information to assess the current situation and determine what the client must do to meet his goals.
Step-4: Developing and presenting financial planning recommendations and/or alternatives:
The planner then offers his recommendations that meet the client’s goals, based on the information provided.
Step-5: Implementing the financial planning recommendations:
The planner, if asked by the client, carries out the recommendations by coordinating the whole process with the client and other professionals such as insurance companies, stockbrokers, or mutual fund houses.
Step-6: Monitoring the recommendations:
If the planner is in in charge of the process, as agreed by the client, it is the responsibility of the planner to report periodically to the client to review the situation and adjust the recommendations, if needed.