By Michael Hathaway, CFP®, CFA®, AIF®
In the first article of this series, I shared the first three steps of the financial planning process I use with my clients. In this article, I will be discussing steps 4 through 7. No matter how clients come to decide that they need financial planning, whether it’s just a vague sense of wanting to get their finances in order or an urgent issue that needs attention, walking through these steps together can help them dramatically reshape their financial lives. My goal is to make the process as straightforward as possible so that every client can get the most out of our ongoing client-planner relationship.
Step 4: Developing the Financial Planning Recommendations
After completing my analysis of the client’s current situation and identifying and categorizing the areas that can be improved, I prioritize these items and develop a few strategies for improving them.
Generally, the prioritization process involves weighing the potential risks versus the potential benefits in light of the client’s stated financial goals. Also, if an item can be addressed and improved without requiring a great deal of additional in-depth analysis in other areas of the financial planning landscape (i.e., the “simpler” items), this raises its priority. I also consider “behavioral factors” as well, which can affect how likely clients will be to implement plan components in a timely fashion.
The process of developing and prioritizing the financial planning recommendations happens as an advisor-only step in the process and is based on the knowledge and wisdom I have accumulated during my career, my experience working with other clients, and what I have learned about this particular client.
Step 5: Presenting the Recommendations
Once I have developed and prioritized the recommendations, I set up a meeting to present the recommendations to the clients. To facilitate this and make it less overwhelming, I have developed a “One Page Financial Plan” (OPFP) template where I condense all the important information into an easy-to-digest, one-page summary.
My version of the OPFP always includes the client’s Statement of Financial Purpose at the top of the page; this serves as a reminder of what’s most important to the clients and what they are working toward. It should always be consulted when making significant life and financial decisions. This is the client’s “why”.
The OPFP also includes a section for the client’s goals with target dates to accomplish each goal. Some goals can take longer to achieve, and it can be helpful to have shorter-term goals listed for comparison and motivation to keep working toward the longer-term goals.
The OPFP is a wonderful tool to keep clients motivated to keep working toward their goals, but it is not set in stone. Goals will change, some may be added, and others may be demoted as client circumstances change. The OPFP is revised regularly and updated for every meeting with each client.
I create the OPFP early in the financial planning process. It is “high level”, does not go into detail in any one area, and contains no financial data. As we continue working together, I supplement the OPFP with the personal balance sheets and other financial details. This becomes the “executive summary” for each meeting. The OPFP will remain useful to remind clients “why” they’re engaging with me in the planning process, “what” goals they are working towards, and the prioritized actions they’re taking to do so (“how”).
Step 6: Implementing the Recommendations
After the clients have thoroughly reviewed the recommendations and have provided feedback, we begin implementation. On the OPFP in the “Action Steps” section, I list the 3-5 highest-priority recommendations. In addition, I maintain a longer list of all recommendations (including the remaining “future actions”), and these are included in a road map document that will guide the ongoing relationship.
During implementation and throughout our time working together, we will spend time discussing what each recommendation entails and how it helps the client move closer toward achieving one or more of their goals. I also include a “Who” section to detail who is responsible for completing each Action Step and space to record the date that each item is completed.
Because the client-planner relationship is collaborative, some actions will be implemented by me, while other actions will be up to the client to complete. We function as accountability partners in this step, making sure each of us is working toward the collective goal. Once an item is completed, I move it to the “Completed Items” section at the end of the OPFP. This helps provide encouragement and acknowledgment of just how much we’ve accomplished on our journey together.
Step 7: Monitoring Progress & Updating
The last step in the process is not so much a final step as it is a “start the process over” step. Here, we regularly monitor the client’s progress and update the financial plan as needed. This includes updating when items are completed (as mentioned above), as well as when life circumstances have changed, necessitating adjustments to the underlying assumptions, goals, and recommendations of the plan.
In addition to the OPFP, which specifies a set of personalized action items for each client, I also provide an annual calendar of services that are common across all clients. The content and specifics of each quarterly service item will differ for each client, but the annual service calendar ensures that all financial planning topics are being reviewed, monitored, and updated regularly.
Timely monitoring and updating of the financial plan is a crucial step to ensure the recommended strategies stay relevant no matter what changes life brings. It is a key component of the overall financial planning process, for without it there would be no way to measure a client’s progress toward their goals. Each of the other six steps are also repeated and updated as necessary to ensure the client’s plan is timely, accurate, and relevant.
Financial planning is not a one-time event or document; it is an ongoing, comprehensive, and collaborative process to help clients achieve their most important financial goals. Through this seven-step process, clients will gain comfort and confidence in their financial future. To learn more about how I work with my clients and if my process could benefit you, email me a Mike@wealthmatters.com or call (707) 428-5500 to get started.
Michael Hathaway is a fiduciary financial advisor at Epsilon Financial Group, Inc., an independent, fee-only wealth management firm. Mike has worked in the finance industry for more than 20 years and brings a broad wealth of knowledge and experience in sophisticated financial planning to help his clients make sound financial decisions. He is known for being compassionate, caring deeply for his clients’ well-being, and thinking creatively to help clients attain their financial goals. He prioritizes building long-term relationships and takes the time to listen, understand, and explain so that his clients feel confident in their financial plan. Mike is a CERTIFIED FINANCIAL PLANNERTM, Chartered Financial Analyst® (CFA®), and Accredited Investment Fiduciary® (AIF®) professional; he has a bachelor’s degree in cybernetics from UCLA and an MBA in finance and accounting from the University of Virginia. When he’s not working at Epsilon, you can find Mike enjoying anything related to exercise and fitness. He especially loves activities in the great outdoors, such as mountain biking, camping, hiking, and snowshoeing. In the fall of 2016, Mike successfully climbed to the top of Mount Whitney in a single day, the highest peak in the continental United States. To learn more about Mike, connect with him on LinkedIn.