This is the process of developing strategies to assist clients in managing their financial affairs to meet their life goals.
The process of Financial Planning involves reviewing all aspects of a client’s situation across a wide range of financially related activities, including inter-relationships among often conflicting objectives such as the need for long term financing of old age and future health against the short term need for either personal enjoyment and or the financing of borrowings.
The starting point for any Financial Planner in advising clients is to:
- Understand who the client is, what has shaped their outlook on life and financial matters.
- What their current financial position is and how is this likely to evolve in the future if left unaltered.
- What goals and desires they have for themselves and their families.
From this raw data it is possible for a Financial Planner to identify what potential clients have to do to improve their overall financial worth by using not only appropriate financial products but also interacting with their legal and taxation advisers in issues that are conducive to their best interests.
From professional experience we know that most people do not have the expertise, the time or the desire to actively plan and manage certain financial aspects of their lives and usually need help getting started. On a personal basis you may benefit from a professional perspective on what are often emotional and possibly difficult decisions.
A member of the Society of Financial Planners Ireland can help you:
- Identify realistic personal and financial goals
- Assess your current financial health by examining your assets, liabilities, income, personal expenditure and personal protection covers.
- Develop a personal, realistic and comprehensive financial plan to meet your personal goals
- Put your plan into action and assist you monitor its progress
- Stay on track to meet changing goals, personal circumstances, markets and tax laws
Quite often a specific life event or need will prompt the desire for professional financial planning guidance. These might include:
- Making sure your money will last during retirement
- Dealing with a complex financial situation such as calculating how long your retirement income will last or maximizing tax strategies
- Handling the inheritance of a large sum of money or other unexpected financial windfall
- Preparing for a marriage or divorce
- Planning for the birth or adoption of a child
- Facing a financial crisis such as a serious illness or layoff.
- Caring for aging parents or a disabled child or sibling.
- Coping financially with the death of a spouse or close family member
- Funding educational needs of children
- Buying, selling or passing on a family business
It is extremely important to make sure that you are comfortable that your financial planner has taken the time to understand your needs, goals and preferences before they make any recommendations. There are six steps that a financial planner should take in any financial planning engagement. You should ask them about their planning process as this will help you understand what you can expect when engaging that specific financial planner.
- DEFINING THE SCOPE OF ENGAGEMENT
Your planner should explain the process they will follow, find out your needs and make sure they can meet them. You can ask them about their background, how they work and how they charge.
- IDENTIFYING YOUR GOALS
You work with the planner to identify your short and long term financial goals – this stage serves as a foundation for developing your plan.
- ASSESSING YOUR PERSONAL AND FINANCIAL SITUATION
Your planner should review your personal position – your assets, liabilities, income, personal expenditure, insurance coverage, investment or tax strategies and personal legal situation. He/she should also highlight potential areas of conflict.
- PREPARING YOUR FINANCIAL PLAN
Your financial planner should recommend suitable strategies, products and services, and answer any questions you have.
- IMPLEMENTING THE RECOMMENDATIONS
Once you’re ready to go ahead, your financial plan will be put into action. Where appropriate, the planner may work with specialist professionals, such as an accountant or solicitor.
- REVIEWING THE PLAN
Your circumstances, lifestyle and financial goals are likely to change over time, so it’s important that your financial plan is regularly reviewed, to make sure you keep on track.
People often turn to a financial planner to help simplify their finances and set achievable financial goals, providing greater confidence to plan for their future. These goals can include:
- Having enough money to retire at a certain age
- Paying off your personal loans, credit card or mortgage.
- Having an investment which provides a return in link with your expectations of risk
- Reduction of taxes
- Saving for an investment
- Providing an educational fund for children or grandchildren
- Saving for a holiday or a family wedding
- Passing a business on to your next of kin
- Exiting a business
- Taking long term care of a disabled child or sibling
- Making charitable donations
When asking your Financial Planner how they get paid you will encounter the follow three broad types of remuneration methods: Commission, fee-based and fee-only.
Some financial planners segregate their financial planning services from the arrangement of financial products. Where a financial planner is engaged to provide a standalone financial plan or undertake a specific financial analysis only, the planner is remunerated by a direct fee payment from the client. It is usual for such fee amount to be agreed in advance of the work commencing.
Some Financial Planning Professionals have their background in the Insurance or Banking Industry where, historically, it has been the norm that payment for advice was by way of a commission payment from a third party provider for selling a financial product. These Professionals will tend to be regulated by the Central Bank of Ireland. Of such individuals that may also be Independent Intermediaries the Central Bank of Ireland requires them to, at least, offer clients a choice of paying either a fee or commission in the event that the advice leads to a financial product purchase.
Other Financial Planning Professionals are Lawyers or Tax Consultants and it is important to note that they may not be regulated by the Central Bank of Ireland for Investment Business but will be regulated by the own Professional Bodies such as the Law Society or the Institute of Chartered Accountants. In these Professions it is normal for clients to pay for advice by way of a fee.
It’s wise to do some research before you decide on engaging a financial planner. The SFPI National Register of Members provides an overview of members’ qualifications, regulated status as well as their website, contact details and a local area map. This can be viewed at: https://www.sfpi.ie/memberlist/
Rapport and trust are essential as your financial planner is going to know more about you than your accountant or doctor, as he or she will have details of your finances, medical history and family situation. If you can’t establish that rapport early on in your first meeting, you might like to keep looking.
Before you decide to work with a financial adviser, whether at a small firm, a big brand-name financial institution, or a stockbroker, you really need to do your research and ask some tough questions.
- What are your qualifications?
The myriad different professional qualifications that exist for financial advisers and planners in Ireland can make this analysis quite complex. Financial planning is a detailed, comprehensive process and requires an individual who has proven experience and skill in the financial planning process itself.Make sure you have a good understanding of the planner’s qualifications, confirming that they are, in fact, a qualified planner. As such, check if they hold any advanced level professional credentials, such as the aforementioned Certified Financial Planner ™ accreditation.
- What experience do you have?
Experience is an important consideration in choosing any professional so don’t hesitate to ask how long the planner has been in practice, how long they have actually practised as a financial planner, with what firms they have been associated and how this experience relates to their current practice.
- What services do you offer?
The services a financial planner offers will vary and depend on their credentials, areas of expertise and the firm for which they work. Some planners prefer to develop detailed financial plans encompassing all of a client’s financial goals. Others choose to work in specific areas, e.g. taxation, estate planning, insurance and investments. Ask whether the individual deals only with clients whose specific net worth and income are above a certain level, and whether the planner will help you implement the plan they develop or refer you to others who will do so.
- If financial product needs to be arranged do you operate as an independent adviser or are you tied to a financial product provider?
While all qualified financial planning practitioners are capable of providing you with a financial plan, such plans invariably require the arrangement of some financial product. If this is the case you should ask the financial planner if they operate as an independent advisor with multiple product options or is the product recommendation limited to one provider.
- How will I pay for your services and how much do you typically charge?
There is no such a thing as free financial advice. Your planner should disclose the cost of their services in writing before starting to work with you, clarifying how they will charge you for the services they will provide.
- How are you regulated?
Financial Planning Professionals are regulated by the Central Bank of Ireland, must abide by the code of ethics and be members of their relevant professional educational bodies.You should also ask whether the advice they give when recommending financial products is independent or restricted.
- How often do you review my situation?
Although many do so more frequently, good financial planners will undertake a thorough review of your plan once a year to ensure that it keeps up to date with your changing circumstances. This is usually sufficient once the initial financial planning review has taken place.
- Can I have it in writing?
And finally, be sure to ask the planner to provide you with a written agreement detailing the services that will be provided, including charges for both the initial financial plan and any subsequent product implementation that might be necessary.
Content on this site is for general information purposes only. Please note that that The Society of Financial Planners of Ireland (SFPI) does not give personal financial planning advice.