A Financial Plan can be financially liberating for a client or can highlight areas where changes can be considered to help them to achieve their dreams.
Writing as many Financial Plans as I have, I believe there are two key benefits of them:
Firstly, they provide a useful snapshot to show a client exactly where they are at that point in time AND their outlook for the future, which can be really useful to show a client how their money journey could look.
But secondly, a Financial Plan can be a really good opener for a Financial Planner to understand the client’s goals and be proactive in making changes, if necessary, so that clients have the best chance of meeting their goals or, more often, show them that they have enough money in their metaphorical bucket to stop working if they wish and enjoy life.
There are many areas to consider when creating a good Financial Plan for a client. The following are five of the key areas:
Goals & values
Without a doubt, understanding your client’s goals and objectives is the most important thing to consider when creating a Financial Plan.
It is important not only to understand when they want to stop working or what they want to spend their time doing but also what they value. Will your client feel a weight lifted from their shoulders by knowing that their day-to-day spending is guaranteed? Or do they want to leave a legacy? Only when you have the answers to these questions can you begin to shape a Financial Plan.
One of a Financial Planner’s key skills is to be able to listen to what is being said and, equally, what is not being said. Through knowing your clients on a deep level and gaining their trust, you can create a truly personal plan for them in line with how they want to live their lives.
Data
Financial Plans can produce some useful and meaningful outputs that can empower clients and facilitate discussions around planning opportunities. Central to a Financial Plan is cashflow modelling, which can bring alive a set of financial data and is a very visual tool that Financial Planners can use when forming recommendations.
However, it is very sensitive to accurate inputs. It is essential that accurate fact-finds are collected, including accurate valuations, income and expenditure details. Expenditure is an area in particular where the data may not be accurate, as trying to fully understand true expenditure can be tricky. Often one-off expenses such as buying a new car and discretionary expenditure can be missed off, and there is a risk that assumptions are then made based on a client needing less money than they truly do. The more accurate the information is going into cashflow modelling software, the more meaningful the results.
Assumptions
Sticking on the topic of cashflow modelling, all software in this space relies on a set of assumptions to show the impact of things such as investment growth, inflation and excess income saved on client money over time. What is remarkable is that two seemingly identical Financial Plans can end up telling a very different story just by changing one or two of the assumptions.
If we consider changes to inflation over the past few years, still basing a Financial Plan on 1.5% inflation, for example, is likely to show a very different story than if a figure of 5% was used. The same can be said for assuming cash and investment growth rates. Similarly, assuming linear growth or allowing for investment market corrections can change the outlook of a plan. As we cannot predict the future, much of this is academic. However, it is essential the client knows what you have assumed when creating their plan to avoid misleading them. It is good practice to have a robust methodology behind your assumptions and review them periodically.
Wider planning considerations
A good Financial Plan should take a holistic approach to a client’s financial situation. It is important that areas such as whether clients have financial protection, valid Wills and a Power of Attorney in place are considered, as just focusing on the money-over-time side of the Financial Plan can be likened to laying bricks before digging the foundations. The plan is only useful if these vital areas are considered.
Next steps
A Financial Plan should not be a document that is produced and filed.
Every Financial Plan that I have written concludes with actionable steps for you, the Financial Planner, the client and in most cases, joint steps to make meaningful goals-based changes.
