FINANCIAL PLANNING PROCESS

CHARACTERISTICS THAT DEFINE A PROFESSION

SPECIALIZED KNOWLEDGE NOT GENERALLYUNDERSTOOD BY THE PUBLIC

THRESHOLD ENTRANCE REQUIREMENT

SENSE OF ALTRUISM

CODE OF ETHICS

ANOTHER VIEW

A COMMITMENT TO HIGH ETHICAL STANDARDS

A PREVAILING ATTUTUDE OF ALTRUISM

MANDATORY EDUCATIONAL PREPARATION AND TRAINING

MANDATORY CONTINUING EDUCATION

A FORMAL ASSOCIATION OR SOCIETY

INDEPENDENCE

PUBLIC RECOGNITION AS A PROFESSION

BEST JOBS IN AMERICA (money.cnn.com—2006)

Rank Career Job Growth* Average Pay1 Software engineer 46% $ 80,4272 College professor 31% $ 81,4913 Financial advisor 26% $122,4624 Human resources mgr. 23% $ 73,7315 Physician assistant 50% $ 75,1176 Market research analyst 20% $ 82,3177 Computer/IT analyst 36% $ 83,4278 Real estate appraiser 23% $ 66,2169 Pharmacist 25% $ 91,99810 Psychologist 19% $ 66,35911 Advertising manager 20% $107,04912 Physical therapist 37% $ 54,88313 Technical writer 23% $ 57,84114 Chiropractor 22% $ 84,99615 Medical scientist 34% $ 70,05316 Physical scientist 12% $ 80,213

*Projected 10-yr. forecast

EARNINGS OF CFPs(recent CFP webpage)

MEAN EARNINGS REPORTED BY NUMBER OF YEARS PRACTICING AS A CFP

Gross NetYears Earnings Earnings

Less than 1 Yr. $ 95,964 $ 69,9001- 4 years $125,833 $ 79,6565 – 9 years $311,824 $173,46710 – 14 years $325,793 $163,22615 – 19 years $425,162 $233,36220 – 24 years $517,186 $264,60025 – 29 years $462,500 $265,000

WHAT IS A “FINANCIAL PLAN”?

WHAT IS “FINANCIAL PLANNING”?

WHO DOES FINANCIAL PLANNING?

• TAX PREPARERS

• ATTORNEYS

• LIFE INSURANCE AGENTS

• PROPERTY AND CASUALTY AGENTS

• STOCK BROKERS

• FINANCIAL PLANNERS

WHAT IS THE “FINANCIAL PLANNING PROCESS?”

SINGLE-PURPOSE APPROACHMULTIPLE-PURPOSE APPROACHBoth of these are not true financial planning if the financial planning process is not followed.

COMPREHENSIVE APPROACHNot started until about 1975.In the mid-1980s, tax reform legislation greatly reduced the number of financial advisors.

In its purest form: 1. involves fee only planners 2. is performed for a client all at once in a single planning engagement 3. best accomplished with a team approach

STEPS IN THE FINANCIAL PLANNING PROCESS

1. ESTABLISH CLIENT-PLANNER RELATIONSHIP

2. GATHER CLIENT DATA AND DETERMINE GOALS AND EXPECTATIONS

3. DETERMINE THE CLIENT’S CURRENT FINANCIAL STATUS

4. DEVELOP AND PRESENT FINANCIAL PLANNING RECOMMENDATIONS AND/OR ALTERNATIVES

5. IMPLEMENT THE FINANCIAL PLAN

6. MONITOR THE FINANCIAL PLAN

STEPS IN THE FINANCIAL PLANNING PROCESS

(CFP APPROACH)

STEP 1: ESTABLISH CLIENT-PLANNER RELATIONSHIP• Explore with the prospective client his/her financial planning needs and expectations, as well as the CFP professional’s suitability and desire to meet those needs and expectations.• Discuss with the prospective client issues and concepts related to the overall financial planning process.• Explain the scope of professional services offered by the CFP.• Provide disclosures as required by the CFP Board’s Code of Ethics and Professional Responsibility.• Clarify the client’s responsibilities and those of the CFP.• Mutually define the scope of the engagement• Document the scope of the engagement.

STEP 2: GATHER CLIENT DATA AND DETERMINE GOALS AND EXPECTATIONSInvolves much more that asking questions and filling out a form.•Obtain necessary information to formulate the financial plan.•Collect applicable client records and documents.•Determine the client’s personal and financial goals, needs, and priorities with active client participation.•Determine the client’s time horizon for each identified goal.• Identify the client’s values, attitudes, and expectations that may impact the financial plan.•Determine the client’s level of knowledge about financial matters.•Determine the client’s risk tolerance level.

STEP 3: DETERMINE THE CLIENT’S FINANCIAL STATUSAnalyze and evaluate the client’s current financialsituation, preparing projections when appropriate: Statement of financial position/balance sheet Cash flow statement/budget Debt Estate documents Education funding Retirement plans and strategies Employee benefits Special circumstances Income tax Investments Asset allocation Insurance coverage Closely held business Capital needs analysis

STEP 4: DEVELOP AND PRESENT FINANCIAL PLANNING RECOMMENDATIONS AND/OR ALTERNATIVESPrepare appropriate alternative recommendationsto meet the client’s goals and objectives.Conduct quantitative sensitivity analysis (time horizon,inflation rate, investment returns, etc.Provide documentation for recommendations Where appropriate.Present alternatives, recommendations, and Review assumptions Obtain feedback from the client and revise asappropriate.Prioritize action items.Obtain client’s agreement.

STEP 5: IMPLEMENT THE FINANCIAL PLAN

•Create an implementation plan with appropriate timeline.

•Implement the recommendations.

•Coordinate as necessary with the client and/or other professionals.

STEP 6: MONITOR THE FINANCIAL PLAN

Monitor and evaluate effectiveness of recommendations.

Review the performance and progress of the plan with the client.

Discuss and evaluate changes in the client’s personal circumstances.

Review and evaluate changes in the legal, tax, and economic environments.

Make recommendations to accommodate changed circumstances.

PERSONAL DATACLIENT GOALS AND OBJECTIVESIDENTIFICATION OF ISSUES AND PROBLEMSASSUMPTIONSBALANCE SHEET/NET WORTHCASH FLOW MANAGEMENTINCOME TAXRISK MANAGEMENT/INSURANCESPECIAL NEEDS PLANNINGESTATE PLANNINGRECOMMENDATIONSIMPLEMENTATION OF PLAN

CONTENT OF A COMPREHENSIVE FINANCIAL PLAN

LIFE-CYCLE FINANCIAL PLANNING

1. EARLY CAREER (25 – 35)

2. CAREER DEVELOPMENT (35 – 50)

3. PEAK ACCUMULATION (50 – 60)

4. PRERETIREMENT (3 – 6 PRIOR TO RETIREMENT)

5. RETIREMENT (62 AND OLDER)

OBSTACLES TOFINANCIAL SUCCESS

What are the main reasons why so many people are not financially successful?

INGREDIENTS FORFINANCIAL SUCCESS

What are the primary ingredients for financial success?

TRENDS THAT CREATEOPPORTUNITIES FOR FINANCIAL PLANNERS

1. RISING MEDIAN AGE

2. MORE DUAL-INCOME FAMILIES

3. CHANGING FINANCIAL CONDITIONSThe financial environment has been more volatile in recent years.

4. LACK OF FINANCIAL PLANNING KNOWLEDGE

CONSUMER NEEDS FOR FINANCIAL PLANNING

• LONG RETIREMENTS ARE EXPECTED

• RETIREMENT INCOME NEEDS ARE • UNDERESTIMATED

• RETIREMENT SAVINGS ARE INSUFFICIENT

• INADEQUATE PLANNING HAS BEEN CONDUCTED