I would like to tell a quick story. When I first started in the business I was fresh out of high school and had obtained my life insurance license. I was not a licensed securities broker yet. This was in 1981. I spent a lot of time around many insurance agents who were much older than me. This was also when Financial Planning was in its infancy. The common thought process at that time among insurance agents was to pass the series 6 and 22 securities license exams and then you could call yourself a financial planner. Once you were licensed up, you could then sell not only all insurance products, but you could now sell mutual funds, variable annuities and limited partnerships. With that you could call yourself a financial planner, but at the end of the day you were still a product salesman. The transition from insurance agent to financial planner was fun to watch. One day an agent was just another insurance agent and once he / she passed the securities licensing exams that same agent was strutting around saying he was a financial planner. Even though I was very young, I could not let that slide by me, I would confront the same agent turned planner and call him out on the fact that nothing had really changed other than his product offering. He knew nothing about financial planning. So what is a financial plan? There are three views to what a financial plan is. The first is the Single purpose view. It can also be viewed as selling a product to fill a need. Some practitioners take the position that the simple selling of a financial product or service to a client in order to solve a single financial problem constitutes financial planning. This could range from a securities broker advising a customer to buy shares of common stock of a particular company. A banker who opens an IRA account. And a life insurance agent who sells a key man insurance policy to the owner of a small business. There is also the Narrow-Focus view. Where practitioners embrace more than just solving a single financial problem of a client and must extend beyond the selling of a single financial product or service. They may emphasize that there are three basic categories of client financial needs, products and services. Which are comprised of insurance planning, tax planning, and investment planning. Lastly, there is a Comprehensive-Focus View. Where financial planning must consider all aspects of the client’s financial position, which includes all of the client’s financial needs and objectives, and must utilize several integrated and coordinated planning strategies for fulfilling those needs and objectives. Wow, which type of financial planning process would work for me? In the end, it depends on how much assets do you own. How complicated are those assets. Who do you want to pass those assets to? If you are just beginning your career and starting your savings, you will probably fit in the single purpose plan. Where you starting funding your savings though your 401k plan at work, purchase a term life policy for you family in the event you die too soon, and or have an attorney draw up a simple will. As you accumulate more savings and investments, if you start a business, and hopefully your annual income increases, you will work your way up the ladder to the narrow-focus plan and ultimately as you become much more successful you may need a comprehensive financial plan. Where to I start and what do I expect? There are six steps to the financial planning process.
- We gather the relevant information about you and your family.
- We analyze your present position.
- We develop a plan for achieving your objectives.
- We obtain your approval of the plan.
- We implement the plan.
- We review the performance of the plan periodically and revise the plan as needed.