What is your financial adviser's process?
People often think that ”investment advisers,” “wealth advisers,” “financial advisers,” and “financial planners” are all cut from the same cloth. This couldn’t be further from the truth. Unfortunately, the terms “investment adviser,” “wealth advisor,” “financial adviser,” and “financial planner” don’t really mean anything. These are job titles that stockbrokers, annuity salesman, and insurance slingers give themselves. How can you tell if your adviser is a fiduciary, fee-only financial adviser? The easiest way is to ask them about their process.
The Process
The comprehensive financial planning process is well-defined. Each financial planner has their own personalized approach, but generally speaking, the process should include the following steps:
Define the relationship
Are you looking for the planner to address a narrow set of questions on a specific financial planning topic, or are you looking to delegate the entire financial planning process? What kind of report or deliverable are you expecting at the end of the engagement? How is your advisor compensated? The first step of the financial planning process is to get these details nailed down by defining the relationship.
Gather documents and data
If you have decided upon a comprehensive financial plan, your financial planner will provide you with an extensive list of documents and other information required to complete it. These documents include: bank and investment account statements, copies of the last 3 years of income tax returns, insurance policies, estate planning documents, your health care directive, etc. The more information that you are willing to share, the more detailed your plan will be.
Develop financial goals
Developing your financial goals is imperative because it clarifies the objective. When do you want to retire? Where would you like to retire? What does your retirement lifestyle look like? How much would you like to leave to the people and institutions who have had a profound impact in your life? How often and where would you like to vacation? Is there a passion project that you would like to earmark time and resources towards? This is an exercise in self-reflection. Put on some music. Go for a walk. Get yourself to a place where you can give these questions some serious consideration.
These goals may change during the financial planning process. If you are doing better than you originally thought, a goal you may have never entertained might now be within reach. Alternatively, if you have an unrealistic expectation around retirement time horizon or lifestyle, it may be time to adjust. Be flexible.
Analyze current financial situation and develop plan
The comprehensive financial plan consists of several individual reports. These include a statement of net worth, a cashflow analysis, an investment analysis and a risk management plan.
Once the advisor has assessed your current situation, a plan will be developed that will take you from where you are today, to where you want to be. As indicated above, your goals may change based upon what is discovered in this process. But once drafted, the comprehensive financial plan will provide the roadmap to achieving your goals.
Present plan and review with client recommendations
Once completed, the investment advisor will present the plan to the client. During the plan review meeting, the planner will describe the findings in detail. If there were any misunderstandings or errors, the client should bring them to the adviser’s attention at this time. If there are any reservations about how realistic the plan is, this is the time to express them. If necessary, the advisor can redraft based upon your input.
Implementation
This is where the rubber hits the road. If you need assistance with implementing the suggestions, make sure your advisor is aware. If you feel comfortable implementing on your own, then proceed as you see fit. Do not hesitate to ask your advisor questions if you have any issues during this part of the process.
Monitor and Adjust
Once implemented, it is important to review your progress on a periodic basis. Outcomes will be compared with benchmarks to ensure that the actual results are in line with the plan. If results are not tracking, make the necessary adjustments.
Modify plan as necessary
Life happens! If you have a significant event in your life, you may need to adjust your plan accordingly. Depending upon the significance, it may require reassessing goals and essentially starting the goal setting process all over again. It will be much more efficient the second time around as the financial advisor will have your information. It is important to understand that these plans can evolve.
Conclusion
Not all professionals that call themselves ”investment advisers,” “wealth advisers,” “financial advisers,” and “financial planners” do comprehensive financial planning. Before engaging a financial adviser, make sure you understand their process. Additionally, know that your financial plan will not be set in stone. Rather, it is living document. As your life changes, so should your financial plan. Make sure you have a trustworthy, fiduciary adviser who can help guide you along the way.
About the author:
JP Geisbauer is a Certified Public Accountant and a Certified Financial Planner ®. He is the founder of Centerpoint Financial Management, LLC, a retirement planning, investment management, and tax planning firm located in Irvine, CA.
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Disclaimer:
This article is for general information and educational purposes only. Nothing contained in this article constitutes financial, investment, tax, or legal advice. Before taking any action on any topic discussed in this article, please consult with your financial planner, investment advisor, tax professional, and/or attorney for advice on your specific situation.