The financial planning process - Part I

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Since I’ve gotten to talking about the purpose of the financial planning process and the benefits of having a formal plan… I’d like to break it down for you even further so you can really conceptualize what I’m talking about.

As the title references, the planning process is six steps long. The process is also known by the acronym EGADIM… each letter representing a step in the process.

When I was first studying for the certified financial planning exam I would remember the letters because it spells MIDAGE backwards… a funny coincidence based on the subject matter.

EGADIM

STEP 1 - is to Establish the relationship between you and the client. The purpose of this step is to define the scope of the engagement, so both parties know what to expect of each other. Among the topics to be discussed:

• Identifying the services to be provided
• Describing how the planner will be compensated
• Delineating the responsibilities of both parties

Step 2 - is to Gather information about the client. This is the fact gathering part of the process where you really get to know your client. You gather both qualitative information (i.e. clients risk tolerance is low, the client loves to fish and wants to buy a boat) and quantitative information (i.e. the client has 200K in bank CD’s, the client has an insurance policy with a face value of 500K).

This is where the client tells you what his (or her) goals in life (and death) are… and we assign dates and amounts to when we want to achieve these goals. This is also the fact finding part of the process, usually a fact finding questionnaire is used to gather all the necessary information.

Step 3 - is to Analyze all the data gathered in the previous step. This is where everything starts to become very apparent, you can see the financial health of the client, much like a doctor getting the results back from all the tests that were run.

You can see whether or not the clients goals are in line with the current financial picture, whether or not the current investments match the risk profile, whether or not they can retire and move to Florida at age 55, whether or not they can afford to take an “around the world trip” on the Queen Elizabeth II and still retire at age 55.

Unwrapping the gift

For me this is where things really begin to pick up… after you’ve crunched the numbers and the merky waters start to clear. Although, generally speaking, from experience you have a good idea how the plan may turn out… it’s still an exciting part of the process.

It’s almost a bit embarrassing to say this but when I look at the analyzed data for the first time it’s kind of like when you were a kid opening your presents at Christmas time; the anticipation, wondering whats inside.

That excitement pours over into to Step 4 of the process if you love what you do…

Step 4, 5 and 6 are covered in my next post. I think I’m going to go for a run, been inside typing quite a bit and need some physical activity. See you on the other side…

Tags: EGADIM, Financial Planning Retirement and Now!