- The Initial Stage: In the initial meetings, the financial advisor will ascertain your assets, liabilities, incomes and expenses. The advisor will also enquire about your future pensions, income sources, projected retirement needs and long-term financial obligations. Knowing this will help the financial advisor assess your risk tolerance and risk capacity. In addition, the advisor will ascertain your investment preferences as well. Other details that the advisor will cover at this stage include your life insurance issues and your tax situation.
- The Plan Formulation Stage: After you complete the questionnaires and participate in various conversations, the advisor will prepare a financial plan. The plan will typically summarise your net worth, assets, liabilities and working capital. The plan will include sections pertaining to your investment risk tolerance, legal estate planning details, long-term care risk and other relevant future financial issues as well. The plan will typically feature potential best and worst case retirement scenarios.
- The Implementation Stage: The financial advisor will allocate your assets based on your risk tolerance and risk capacity. Asset allocation denotes the percentage of your total financial portfolio that the advisor needs to distribute across various asset classes. Risk averse clients will have higher concentrations of fixed assets, while risk taking clients will have a higher proportion of stock assets. As it buys and sells financial assets, the financial advisory firm will act in accordance with its investment policies.
- The Monitoring Stage: The financial advisor will send you regular statements. These will help you to understand your investment portfolio. In addition, the advisor will set up regular meetings for reviewing the progress of the plan and your goals. In case your goals have changed since your last meeting, the advisor will make the necessary changes in the plan
When you visit your financial advisor, you will likely have a host of questions and doubts. But, as your interactions increase, you will find your doubts fading away. More importantly, you will be able to feel in control of your finances. Many people are typically uncertain about the future. But, with the assistance of your financial advisor, you will be able to fend off any doubts that might arise quite easily. This is especially so because your financial advisor will have given you a plan for meeting your financial goals. In many cases, this plan will automatically take into account all kinds of events and uncertainties that could make you experience financial adversity. The financial planning process leads you from a position of uncertainty to assurance about your financial health. This does not come about in an instant. Rather, it takes place over a series of exchanges. Some of the most important stages in the financial planning process include: