What is Financial Planning? 11/4/07

What is Financial Planning? 11/4/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

What is Financial Planning?

“What Is Financial Planning?”



Over the past thirty-plus years the business of financial planning has matured into a mainstream profession.  Today there are more than 56,000 professionals who hold the Certified Financial Planner™ designation.  These people are dedicated to helping others achieve their life goals.  Certified Financial Planner™ professionals are governed by the Certified Financial Planner Board of Standards, Inc and its Board of Directors who impose practice standards and continuing education requirements on all CFP® designees.  Still my own experience is that many people do not understand what financial planning is or what they should expect if they hire a financial planner.  Financial planning involves a 6-step process:


1. Establishing and defining the client-planner relationship.

The financial planner should clearly explain or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.  Recent rule changes require that this be in writing.

2. Gathering client data, including goals.

The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you advice.

3. Analyzing and evaluating your financial status.

The financial planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies.

4. Developing and presenting financial planning recommendations and/or alternatives.

The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.

5. Implementing the financial planning recommendations.

You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your “coach,” coordinating the whole process with you and other professionals such as attorneys or stockbrokers.

6. Monitoring the financial planning recommendations.

You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he or she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.


While this is a brief overview of the financial planning process, it should give you a feel for what to expect when working with a financial planner.  I should also note that there are many cases where people engage a financial planner to help in specific financial areas rather than this more comprehensive approach.  A good example is that often planners are hired to act as the client’s investment manager or advisor without a comprehensive review of the other areas.  Next week I’ll discuss how to choose a financial planner and how they are compensated for their services.