What is Financial Planning?
As a financial advisor, you play a critical role in helping your clients achieve their financial goals. From budgeting and saving to investing and retirement planning, there are many different areas to focus on.
Financial planning is the process of setting, planning, and managing finances to help your clients realize their long-term and short-term financial goals, as well as ensure the safety of their financial future. This involves analyzing your client’s current financial state, conducting research and forecasting, creating a financial plan, and then implementing and monitoring it.
You can categorize your services based on the people you work with, such as business finance or personal finance. Or you can categorize your services based on the type of service that you do.
In order to be effective, financial plans need to be comprehensive and holistic in their approach.
6 Types of Financial Planning
This article will discuss the six essential types of financial planning that you should be able to provide, including cash flow planning, insurance planning, retirement planning, tax planning, investment planning, and estate planning.
As a Certified Financial Planner (CFP), you might offer all of these services at once. Understanding these key areas will allow you to provide a well-rounded and effective financial planning experience for your clients.
Cash Flow Planning
The first step to a solid financial plan is creating a detailed budget and overall financial forecast for your client. Your clients should be aware of their net worth, income, expenses, and debt obligations so they can understand their overall financial picture and, in the process, make better financial decisions.
Cash flow plans help your client meet their financial obligations when it’s due while helping them take that necessary step to achieve their financial goals. A cash flow plan will help you and your clients identify potential issues, so you can take preventative measures before it turns into a problem.
A good cash flow plan should also include emergency funds and help your client navigate unexpected situations.
Insurance Planning
Another important part of financial planning is ensuring your clients have the right insurance coverage. The appropriate insurance can protect your client’s livelihood and financial goals in the event of unforeseen financial losses, providing financial security for them and their loved ones.
In order to help your clients choose the appropriate insurance, you need to assess the risks that they may face. This will determine the type and amount of coverage your clients need, such as life insurance, health insurance, disability insurance, and property and casualty insurance.
Once you’ve assessed the risks, do your research to evaluate the coverage options available and compare them.
Make sure that your clients understand the coverage level, costs, and risks associated with the insurance they are choosing.
Additionally, your client will change over time. Health status, asset value, and financial goals and needs change, which means their insurance and coverage needs will also change. It’s important to review and update your client’s chosen insurance policies regularly to ensure that the policies continue to meet your client’s needs.
Retirement Planning
Regardless of where your clients are in their lives and careers, retirement planning needs to be taken seriously. Retirement goals, such as when and how your clients will retire, should be identified and a regular plan needs to be put in place to ensure they’re on track.
When creating a financial retirement plan, you need to assess your client’s retirement needs, such as their desired retirement age, current financial life, and their ideal retirement lifestyle. With the diminishing income that comes with retirement, the goal of retirement planning is to ensure that your client has enough money to maintain their standard of living during retirement.
Retirement planning involves reviewing your clients’ current retirement income, such as Social Security benefits, pensions, and other sources of income and saving accounts they can take advantage of (e.g. 401(k) and Roth IRA). It’s also important to compare them to the client’s goals and expenses in retirement while factoring in risks, such as inflation and market volatility.
If your client’s current income isn’t enough, it’s your job to help them develop strategies to increase their retirement income through investments and other sources.
Having a retirement plan in place will also reduce the stress and anxiety a client may feel about their financial future. Knowing that they have a plan in place can give a peace of mind and hopefully, helps them sleep better at night.
Tax Planning
Tax planning involves analyzing your client’s current tax situation and identifying strategies and tactics that can minimize the amount of taxes they pay—which may result in significant savings and ease their financial burden.
It involves anticipating and managing taxes in order to maximize the benefits of deductions, credits, and other tax-saving opportunities while minimizing the risk of an audit or other penalties. In order to take advantage of tax-saving opportunities, tax planning should be done all year round and not just at the end of the year or during tax-filing season.
It’s important to keep up with tax laws and regulations so you can identify strategies that are best suited to your client’s individual situation. This could be anything from finding tax-advantaged investments, maximizing deductions and exemptions, or taking advantage of tax credits to reduce the amount of taxes paid.
Investment Planning
One of your primary responsibilities is to be their investment advisor and help your clients create and implement a comprehensive investment plan that aligns with their long-term financial goals.
Before creating an investment plan, first, you need to assess your client’s risk tolerance, investment goals, and return expectations. Are they more comfortable with low-risk investments, or high-risk investments? What do they hope to gain from their investments? Does their financial situation support their investment preferences?
Additionally, it’s necessary to spread your client’s investments across different asset classes and sectors in order to diversify their investment portfolio. By doing portfolio management, you can help minimize risk in the event that one of their investments tanks.
If you’re also a fiduciary, make sure that you’re acting in your client’s best interests, especially when you’re giving investment advice or suggesting financial products.
Estate Planning
Estate planning is the process of organizing and managing your client’s assets to ensure that they are distributed according to their wishes after they pass away.
While this may be a grim topic for some due to its subject matter, estate planning is very much necessary.
Without a proper estate plan, in the event of someone’s passing, a huge chunk of their assets can be lost to various expenses, such as estate taxes and probate fees, instead of getting passed on to their beneficiaries. Estate planning helps minimize those expenses and ensure that beneficiaries get as much as possible.
Sorting out estate planning also ensures that the assets are distributed in an orderly and efficient manner.
A comprehensive estate plan should include a will, beneficiary designations, a Durable Power of Attorney, an Advanced Directive, and may also include setting up trust funds. These components can help clients make sure their assets are distributed as they wish and minimize the tax consequences that may be burdened to their heirs.
How to Create Your Financial Plan
By integrating the six essential financial planning types into your plan, you can create a good financial plan for your clients. While we have discussed briefly some of the fundamental things, there are some fundamental things we have yet to discuss, such as:
Identify where your client is in their financial stage of life: This can help understand the client's current financial needs, goals, and priorities. Different life stages may require different types of financial advice, planning, and investment strategies.
Assess your client's current financial situation: You should do this before any kind of planning takes place. Assessing your client’s financial situation helps you to identify areas where your client may be overspending or undersaving, and provide a baseline for the financial plan.
Establish financial goals: Work with the client to establish their financial goals, including short-term goals such as paying off credit card debts, and long-term goals such as retirement or buying a house.
Review and update the financial plan periodically: The world’s financial situation, as well as your clients, changes over time. It’s important to ensure that your client’s financial plan is flexible to support these changes and is still aligned with the client’s current financial situation and goals.
Let Asset-Map Help With All of Your Financial Planning
A financial plan can range from the basic but fundamental things—like helping your clients create a budget and save for specific goals—to more complex but necessary matters, such as minimizing their tax liability and protecting their assets through insurance.
There are other different types of financial planning services, such as investment management, wealth management, or real estate planning. However, these are six you should consider including in your services.
In addition, there are a lot of factors to consider when making a comprehensive financial plan—and a lot of data.
Make sure that you stay on top of the data when creating a financial plan for your clients. You can use Asset-Map’s financial planning features to make all of your financial planning processes simpler. Keep up with your clients’ data using the visual map to make sure that you can see the gaps at a glance.
Schedule your demo today and see how Asset-Map can help you run your practice—no matter what you specialize in.
