Financial Planning Process
Begin with the End in Mind.
- Steven R. Covey, Author, The 7 Habits of Highly Effective People
The proper approach to financial planning requires a disciplined process that begins with a thorough understanding of your long- and short-term financial and other relevant goals. Only after your goals are identified and prioritized can strategies be developed that will provide a road map to achieve greater financial security and independence.
The creation of a financial plan generally entails a review of your present financial situation, the development of strategies based upon your goals, and assistance with the implementation of the recommendations. Essentially, the process answers the questions: where are you today, where would you like to be in the future, and how do you get there?
After an initial consultation, the planning process typically includes three main meetings, followed by a series of shorter meetings or conference calls. The number and length of meetings will depend on the services to be provided. The first meeting includes data gathering related to your present financial situation and an understanding of your goals and objectives. During the second meeting, we will present a "draft" plan and discuss the recommendations and an action list that would be necessary to implement the recommendations. The plan is considered to be a "draft" to provide you the opportunity to review the assumptions contained in the plan. Based upon the discussion in this meeting, plan assumptions may be changed and additional scenarios analyzed. In the third meeting, the final plan recommendations and action list will be presented and discussed. The process is completed with the implementation of plan recommendations and the monitoring of results.
In reality, a financial plan is a continuous process, not a one-time event. As changes arise in your personal or economic situation, your plan should be reviewed and updated to reflect their impact.
Kalorama is committed to following the six-step financial planning process established by the Certified Financial Planner Board of Standards, Inc. (CFP Board). A step-by-step overview of the process follows:
- Initial consultation
- Data gathering and goal setting
- Analysis of current situation relative to goals
- Plan development and presentation
1. Initial consultation
The initial consultation is designed to establish the planner-client relationship through a discussion of:
- The services provided and compensation structure;
- identifying planner and client responsibilities;
- defining or limiting the scope of the engagement;
- and determining the timeframe of the engagement.
2. Data gathering and goal setting
Through an interview process and questionnaire, we gather data regarding your financial situation and goals. The data acquired in this step should provide:
- A quantitative and qualitative overview of your current financial situation.
- Specific goals and objectives that are prioritized (time frame) and quantified (measurable).
Examples of goals would be: capital needs for retirement at a certain age; capital needs for children's education; appropriate levels of insurance.
3. Analysis of current situation relative to goals
Your current financial situation will be analyzed to determine the adequacy of resources available to achieve your financial goals. This may include a review and evaluation of general financial status, special needs, insurance and risk management, investments, taxation, employee benefits, retirement, and/or estate planning. This may include the preparation of financial statements to include a cash flow and net worth statement.
4. Plan development and presentation
We will develop a financial plan providing a current and projected analysis of your financial situation which is consistent with the scope of the engagement. Depending on the scope of the plan, presentation will be accomplished in one or more meetings. Recommendations and/or strategies are presented which are objective and tailored to your goals, values, financial strengths and weaknesses, needs and risk tolerance. Typically, during the initial "presentation meeting" we will present a "draft" plan and discuss the recommendations and an action list that would be necessary to implement the recommendations. The plan is considered to be a "draft" to provide you the opportunity to review the assumptions used in its development. Based upon the discussion in this meeting, plan assumptions may be changed and additional scenarios analyzed. If an additional "presentation meeting" is required, the final plan recommendations and action list will be presented and discussed.
You will be provided a list of prioritized implementation steps and their timing. Implementation may also include coordinating with other professionals for areas in which Kalorama does not provide services or products recommended in the plan. Depending on the scope of services provided in the engagement, this may include professionals that can assist with insurance, investments, mortgage financing, income taxes, and/or estate planning documents. Our goal is to work with your existing advisors to develop and implement strategies that are coordinated to achieve maximum effectiveness. If you do not have an advisor in a certain planning area, we will refer you to other professionals.
Monitoring the plan includes a periodic review to assess whether the recommendations and/or strategies are effective, as well as to consider the impact of changes in your personal or economic situation. Reviews generally should occur at least once per year unless dictated otherwise.
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