From time to time, the question is asked of me: What exactly makes up a comprehensive financial planning engagement? A truly comprehensive financial planning engagement requires 10 to 15 hours of effort (or more) by the financial planner.
What exactly makes up a comprehensive financial planning engagement?
Each individual situation is going to be different, and so your mileage is likely to vary from my explanation. What I’ll do, as a starting point, is list out the areas that are typically covered in what I’d call a comprehensive plan:
goal-setting – spending time understanding the wishes and desires of the client, and quantifying them in terms of time horizon and costs for use in planning; this can include retirement, college, home purchase or remodel, opening a business, parents moving in, and just about any major financial event
priority-setting – understanding the relative importance of each goal
risk analysis – explaining to the client the concepts of risk, how risk is required for return, and garnering an understanding of the tolerance level for risk given the timelines and current financial condition
cash flow – review of financial flows, finding those “unknown” expenditures that can be managed to help meet financial goals; understanding near-term and long-term requirements for cash flow; review of prior tax returns for any issues or overlooked opportunities
present financial condition – review of present accounts, allocation, future planned inflows into those accounts; present position with regard to debt, as well as future debt planned and how debt is to be retired
projection of future cash flows – modeling the future as it pertains to the goals stated, with regard to the present financial condition and assumptions made about holdings, inflows, taxes, debt, and timelines
risk management – review of current insurance coverage(s), especially with regard to life, disability, and long-term care insurance needs, both now and in the future, given results from the future cash flow projections; this often also entails a review of employer-provided benefits and recommendations for participation therein
estate planning – review of present accounts, ensuring appropriate titling and beneficiary designation both now and in the future, given results from other components of the planning process
strategy development – this can entail anything from tax planning to portfolio development to insurance recommendations, debt reduction plan, distribution planning, as well as opening and funding any new accounts deemed appropriate
communication of the results/recommendations – sometimes this takes a couple of hours or more on its own. The point is that the client comes away with a thorough understanding of the recommendations and the reasoning behind them; additionally, the client has an understanding of how to implement the recommendations
implementation – not always required, but often is requested. We spend time helping the client open accounts and making allocations if required, implementing any needed additional insurance coverage (reviewing policies and the like), implementing tax strategies, etc. – or sometimes the client turns the implementation completely over to us
follow up – plans are reviewed after approximately one year to ensure that circumstances have not changed dramatically (with regard to the information used in the original plan). If the client doesn’t wish to engage in formal follow up review, then the engagement is complete.
