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26.2.1 Steps In Financial Planning Process

Learn the essential six-step financial planning process including establishing client-advisor relationships, collecting data, analyzing information, recommending strategies, implementing plans, and conducting periodic reviews.

Steps In the Financial Planning Process

Typically, financial planning is a six-step process as follows:

  1. Establish the Client–Advisor Relationship.
  2. Collect Data and Information.
  3. Analyze Data and Information.
  4. Recommend Strategies to Meet Goals.
  5. Implement Recommendations.
  6. Conduct a Periodic Review.

Financial planning involves the same set of steps for each client. However, within that framework, a plan must address the unique and specific needs of the individual client to be effective.

Step 1: Establish the Client–Advisor Relationship

The first step in the planning process is to interview the client to identify issues, both known and unknown, and determine how a financial plan might help address them. During this process, you and your client will decide whether to embark on a long-term relationship.

Initial Discussion Areas

  • The financial planning process and its benefits
  • Alternative strategies available
  • Specialist expertise required for specific choices
  • Disclosure of possible conflicts of interest

If the initial interview is successful, formalize the relationship with either a letter of engagement or a professional service contract. The letter or contract should include:

  • Information to be provided by the client
  • Services to be provided by the advisor
  • Compensation details for the advisor and other involved professionals
  • Expected duration of the professional relationship

Step 2: Collect Data and Information

Once the relationship is established, the next step is to gather the information required to prepare the financial plan. Clients should understand the importance of providing comprehensive data.

Essential Information to Collect

  • Current financial and personal status
  • Investment goals and preferences
  • Level of risk tolerance

To build an effective financial strategy, uncover client motivations not always apparent. You might ask questions such as:

  • How do they make important decisions?
  • How do they prefer to communicate?
  • What is their psychological makeup?
  • What are family members’ needs, goals, and aspirations?

Communicating with and Educating the Client

Gathering information is just the start of an ongoing relationship involving regular contact and education. Explain your recommendations in simple terms and disclose associated risks.

Additional Information Required

  • Personal data: Age, marital status, dependents, health and employment status
  • Net worth and family budget information

Advise clients to maintain complete records of their finances, including locations of essential documents like wills, insurance policies, bank and investment accounts, pension plans, and contact information for professional advisors.

Dive Deeper

Refer to Appendix A for samples of Net Worth Statements and Family Budget.

Step 3: Analyze Data and Information

Set investment objectives by assessing clients’ personal strengths and weaknesses, and realistic reviews of their career and earnings potential.

Example Analysis

Client Income Type Claimed Risk Tolerance Recommended Investment Strategy
Bill High but unstable High Conservative investments with some liquidity
Ron Steady unionized income Low Possibly blue-chip investments, educate on moderate risks

Objectives and Constraints

Investment objectives commonly aim for income, capital growth, capital preservation, tax minimization, or liquidity. Constraints include risk tolerance, investment knowledge, and time horizon, which should influence the financial plan.

Step 4: Recommend Strategies to Meet Goals

Develop the financial plan based on collected data and analysis. Ensure it is simple, implementable, and easy to maintain. Review the plan with the client, explaining each product, its risks, and rewards. The client must agree with the recommended goals and risk tolerance.

Step 5: Implement Recommendations

At this stage, the client initiates actions based on the recommendations. Immediate actions might include applying for insurance or paying down debt, while long-term plans encompass regular investing in registered accounts like RRSPs. Provide support and referrals to other professionals if needed.

Step 6: Conduct a Periodic Review and Follow-Up

A financial plan should be dynamic, requiring regular reviews and updates to reflect changes in the client’s situation or external factors like economic conditions and tax laws. An annual review is the minimum, but circumstances may require more frequent mini-reviews.

Key Takeaways: Maintain an ongoing supportive relationship with clients, ensuring they adjust their financial plans to new situations and maximize available benefits.

Review recommendations, conduct follow-ups, and ensure implementation of new strategies or adjustments as necessary.

Frequently Asked Questions (FAQs)

What information should be gathered initially from a client?

Initially, collect data about the client’s current financial status, investment goals, risk tolerance, and personal information like age, health, and employment status.

How frequently should a financial plan be reviewed?

An annual review is recommended as a minimum. However, changes in tax laws, economic conditions, or significant personal life changes may necessitate more frequent reviews.

Is the client’s claimed risk tolerance always accurate?

Not necessarily. An advisor should also consider the client’s personal circumstances like job security and financial stability to assess true risk tolerance.

How can client trust be developed?

Client trust is developed through honest and transparent communication, educating the client about risks and rewards, and maintaining regular contact to keep them informed.


  • Net Worth: The value of all assets minus the total of all liabilities.
  • Liquid Securities: Financial instruments that can be easily converted into cash without significant loss of value.
  • Blue Chip: Stocks of established companies known for their financial stability and reliability.
  • RRSP (Registered Retirement Savings Plan): A retirement savings plan in Canada that offers tax benefits.


    graph TD
	    A[Establish Relationship] --> B[Collect Data]
	    B --> C[Analyze Data]
	    C --> D[Recommend Strategies]
	    D --> E[Implement Recommendations]
	    E --> F[Periodic Review]
	    F --> B

End of Chapter Summary

  • Establish a clear, respectful client-advisor relationship
  • Collect comprehensive client data and personal information
  • Conduct thorough analysis to form a precise client profile
  • Develop simple, actionable financial plans and educate clients about them
  • Implement recommendations with the client’s active participation
  • Conduct periodic reviews and make necessary adjustments to the plan

Improve your financial planning proficiencies by continuing to the next chapter or visiting Appendix A for practical application tools like the Statement of Net Worth.

CSC® Exams Practice Questions

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Welcome to the Knowledge Checkpoint! You'll find 10 carefully curated CSC exam practice questions designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you're on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

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## What is the first step in the financial planning process? - [ ] Collect data and information - [x] Establish the client–advisor relationship - [ ] Recommend strategies to meet goals - [ ] Analyze data and information > **Explanation:** The first step is to establish the client–advisor relationship to identify issues and determine how a financial plan might help address them. ## Which step involves gathering the client's financial and personal information? - [x] Collect data and information - [ ] Analyze data and information - [ ] Recommend strategies to meet goals - [ ] Implement recommendations > **Explanation:** The second step involves collecting data and required information to prepare the financial plan. ## In which step do you formalize the client–advisor relationship? - [ ] Collect data and information - [ ] Analyze data and information - [x] Establish the client–advisor relationship - [ ] Recommend strategies to meet goals > **Explanation:** The client–advisor relationship is formalized during the first step, often with a letter of engagement or a professional service contract. ## When should a periodic review of a financial plan be conducted? - [ ] Every five years - [ ] Every six months - [x] Annually, with mini reviews as necessary - [ ] Never > **Explanation:** A financial plan should be reviewed at least annually, with mini reviews as needed based on changes in the client’s situation. ## What should you do if a client's initial interview is successful? - [ ] Immediately recommend an investment product - [x] Formalize the relationship with a letter of engagement or a professional service contract - [ ] Skip the data collection phase - [ ] Begin implementation of recommendations > **Explanation:** If the initial interview is successful, you should formalize the relationship to proceed with the planning process. ## During which step do you set the client's investment objectives? - [ ] Establish the client–advisor relationship - [ ] Collect data and information - [x] Analyze data and information - [ ] Implement recommendations > **Explanation:** The third step involves analyzing the data to set realistic investment objectives that align with the client's goals. ## What is an important component to communicate to clients about a financial plan? - [ ] Hiding the risks involved in their investments - [x] Explaining both the potential rewards and risks of chosen strategies - [ ] Avoid discussing technical terms - [ ] Make decisions for them without explanation > **Explanation:** Effective communication includes explaining the technical nature of the plan's elements, along with their risks and potential rewards. ## What should be included in a letter of engagement? - [x] The services to be provided and the compensation details - [ ] A detailed summary of the client's financial goals - [ ] Market predictions for the next ten years - [ ] Only the qualifications of the advisor > **Explanation:** A letter of engagement should clearly outline the services to be provided, compensation details, and expectations from both parties. ## Why is it important to collect thorough information about a client's financial status? - [ ] To estimate future market trends - [x] To build a complete and accurate client profile for tailored strategies - [ ] To persuade clients to make high-risk investments - [ ] To reduce the advisor's workload > **Explanation:** Thorough information collection is essential to build an accurate profile, which helps in developing customized financial planning strategies. ## How can advisors gain their client’s trust? - [ ] By making investment decisions without involving the client - [ ] By minimizing communication with the client - [x] By communicating honestly and explaining decisions in simple terms - [ ] By only discussing favorable news > **Explanation:** Advisors can gain trust by communicating openly and honestly, explaining recommendations clearly, and discussing the risks and rewards of their financial plans.

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Sunday, July 21, 2024