Tuesday, September 23, 2008

The 6 Steps Financial Planning Approach

Financial Planning is not a rocket science or something very complicated. Many people thought they know everything about their finance but when the pieces are not properly glued together, they somehow will still be confused.

Our responsibility as Financial Planners are to help glue all these pieces together by encouraging them to go through the process of Financial Planning. Once the blue-print are drawn and foundation laid out, they will have a structured plan towards their financial goals. They will no longer think that Financial Planning is only about how much they spend on insurance monthly and Financial Planners as someone who are just trying to sell them an insurance plan.

Financial Planning can be a tedious process for both the client and the planner and hence resulting in many "Financial Planners" choosing not to plan for their clients. 20% of their time is probably introducing a quick concepts and 80% of the time are on how to close the deal. (All in 1 day!!!)

The interesting part is that they are able to derive a recommended insurance coverage without understanding their existing insurance, net worth and cashflow. They are able to derive the amount to save solely based on client's declared budget without understanding their short, mid and long term goals and how the budget are derived.

Today, I like to share the standard 6-steps Financial Planning approach. Though I may not be able to express better than a textbook written by professors or academics, I'll try my best to explain in my own words which I feel its easier to understand.

1) Establishing and Define Client-Planner Relationship
* The planner and Client have to be properly introduced to each other. The planner can take this chance to show his personal and company profile.
* Both of them have to set certain expectations for each other in the Financial Planning Process. * The fees structure and complain mechanism are also be explained.

2) Fact Finding and Goal Setting
* This is the tedious part for the client where he/she will be asked a lot of questions with regards to his Goals, Financial Data, Income/Expenses, Existing Insurance and Investment portfolios, Risk profiling, etc.
* The skill of the Financial Planner is crucial in asking the right questions and understanding the clients Financial needs
* Its more of a process of data collection of both qualitative or quantitative.

3) Financial Analysis and Evaluation
* This is the most tedious part for the planner where he/she have to crunch all the data and systematically analyse them.
* The planner is able to check the client's current financial health by seeing his cash-flow pattern and financial ratios
* The planner also have to detect clients's potential short and long-term financial problems.

4) Developing and Presenting the Financial plan
* The proper Financial Plan should contains the following elements:
a) Net Worth statement - Understanding your balance sheet
b) Budget and Cashflow management
c) Risk Management and Insurance Planning
d) Assets and Liabilities management
e) Investment Planning
f) Retirement Planning
g) Tax Planning (Limited scale)
h) Estate Planning (Limited scale)
* There is a proper analysis system for each of the above element and the essense must be properly presented to the client in order for him/her to link these elements together.
* An initial recommendation can be convened to the client at this stage.

5) Implementation
* On agreement of the recommended action plan, the planner shall draw a proposal based on an analysis of the most suitable plan whether its insurance or investment from all the providers. An ethical planner will ensure that the client get the best value out from these plans.
* Other professionals such as Lawyers or Tax Accountants might be needed at this stage especially when more complicating tax or estate issues are involved.
* Time-line are set on when and how the implementation shall take place

6) Monitor and Review
* There should be a tracking mechanism to monitor if client are on track to his/her financial goals and a paper trail to record changes along the way.
* On certain occasions such as additional to family and marriage, a full review of the financial plan might be necessary.

Financial Planning can be a tedious process but its definitely worthwhile for both the planner and client to ensure the planner recommended the right plan and the client get the best value.


Anonymous said...

how many advisers want to go through all the 6 steps for their clients? so much time taken and no guarantee sales. doesn't make sense. keep up the good work if you have been doing it. I can say you are a rare breed of adviser.

Anonymous said...

Adrain is trained. Insurance agents are not trained. They don't want to be trained, they cannot be trained. They prefer to sell. Selling can cheat and bullshit. This is faster. How to become mdrt or TOT if you follow 6 steps. How to sell whole life and endowment if you use 6 steps. Selling whole life and endowment only needs one step, lie and bullshit and if cannot close, use the 2nd step , cheat. This is the road to mdrt, cot and tot and no other road leads to them.

PanzerGrenadier said...

Hi Adrian

The problem with financial planning is that we are unable to be completely sure of some of the parameters such as the state of our health and how long will we live. That complicates matters somewhat :-)

A lot of financial planning goes on assumptions and probabilities. I had written several posts about retirement planning and realise that while planning for it is important, the assumptions are equally important.

It's hard to get when we are going to live/die right to the nearest few years.

How would you overcome this issue?

Be well and prosper.

Khiat Han Hwee Adrian said...

Hi Panzer,

It is almost impossible to plan to perfection. Our Financial Plan is more like a guide and gives us a direction.

Our cashflow keep changing. Our Asset keep changing. Our investment returns varies over the years. Retirement may not necessarily means totally stopping work, etc. There are too many variables. Assumptions used must also be as realistic as possible.

As a planner, we should regularly review our clients financial Plan and ensure that they are still on track to their financial goals.

Khiat Han Hwee Adrian said...

Hi Anonymous 10:49,

One things I don't quite agree with you.
* MDRT must be someone who lies and cheat. As mentioned before, anyone can lie and cheat, not necesarily a MDRT member.
* Some MDRT member get their business model right and worked hard in their niche market.

Khiat Han Hwee Adrian said...

Moderated comment:

I do agree some got mdrt by hard, very hard way and it is probably one out of hundred. You know mdrt measures how much commission you make.What type of products do you think will help you to achieve mdrt? term or whole life?
You think those insurance agents are trained like you , care for the clients? Come on, I have seen many enough to conclude all ,or 99 out of 100 are not. They never heard of 6 steps. They are interested in 1 step..I am sure you have attended classes or training which taught how to shorten the sales cycle. What do you think they were teaching you, 6 steps? to close ? if possible make the client sign on the dotted line straight away without any need to talk.if possible round up the whole family
and make them buy whole life only, from the baby just born to old people who are going to die soon with revosave .
Whole life and nothing but whole life product or variable whole life ILPS.
You need not defend them. Don't be a hypocrite. Don't fool yourself that they did or conduct 6 step financial planning. If they ever do it is because MAS forces them to and it won't be long. Let's see, ok?
MDRT is nothing but how much you rob the customers to qualify.

Khiat Han Hwee Adrian said...

Moderated Comment:

i am curious how you come can still remain at where you are, knowing that many many of your team members meet the classical definition of cheater, unscrupulous advisers. they are the bad apples who will bring shame to the industry. eventually, because of these people, everyone will be affected when newspapers start to report clients who thought they had bought a wonderful investment plan, but end up lost all premiums paid when they stop putting money in.

these people may get away for the first 18 months, but not for too long. if i may venture a guess, many of them will not be around next year or 2010 the lastest. by looking at their production pattern, you know their practice is highly questionable.

sometimes i really think you are in unenviable position, perhaps extreme agony, disgust? i will if i were you. you do not need to post this.

Anonymous said...

Hi Adrian,

Unethical advisers can do all the 6 steps but when it comes to product recommendation, they are only interested in selling high-commission, poor-value-for-$ plan such as regular premium ILP (Vista?).

FAs can be even more dangerous than insurance agents, because they have many more toxic prodcuts, and these products are much more damaging.

Bank consultants and insurance agents (AIA?) have been on newspaper headlines for the wrong reason. I think the next one will be those so-called "financial adviser" from IFA. We shall see. Adrian please repost this post when it happens.. :)

Anonymous said...

Your former ntuc colleagues are laughing at you. They say why do financial planning.You can't survive.Who cares what others think of you so long the customers don't know.They push revosave and viovolife togather and they make good money.if you sell term you can never qualify for mdrt.
You must be hard hearted and don't care of the customers' problem. It is their business. We don't know how to help. I heard many old people got con to buy revosave..They got money. They can pay for a few years why care so much whether they can pay until finish, right.This is what we make money.Now better . Aia policyholders now come to us.Now is the time to chop them. Why care about so many steps. Make money first then worry later. The ceo also desperate for business always show us every branch below target. So you think he bother how we sell.He close 2 eyes and let you do anything so long no complaint.The clients also blur. What do they know.
Come back and forget about being a hero. Our roadshows need people.Sell revosave and vivolife enough already.

suckychef said...

hi adrian i just started following your blog... i'm just wondering how much does it cost to get a financial adviser and how do FAs earn money?

Khiat Han Hwee Adrian said...

I estimate that probably less than 1% of the Financial Advisers in Singapore are charging fees. Even for this 1%, there is no standard or recommended price range.

Some are charging around $150-$200 over 2-3 sessions. Some are charging by hourly basis of around $50-$100. Some can even charge as much as thousands for plans meant for more sophisicated clients.

As for the rest of the >99% of advisers in Singapore including myself, we are still on a commission basis, rather similar to an agent from an insurance company.