By David Lamb CFP™ MCSI
In recent blogs I’ve detailed the data needed to complete a financial plan and the importance of assumptions.
Now we get to the structure of the financial plan itself. The plan is not a static document and should evolve as the client’s life changes.
It could be relatively simple or quite comprehensive, depending upon the client’s requirements. Either way, it should be easily understandable.
The plan itself may not involve the use of financial products (we are financial planning, not providing financial advice at this stage).
The structure, as recommended by the Chartered Institute of Securities & Investment should include:
- Objectives and priorities – a statement of what the client wants to achieve and when.
- Assumptions – this would usually be a summary of the main assumptions.
- Current position – this will include detailed statements for assets and liabilities as well as net worth, income and expenditure, net spendable income, tax calculations, such as income and inheritance tax. This information will then be used to produce cash flow statements which will then show you where you are heading financially if you do not do anything. A comprehensive plan will also include projections in catastrophe scenarios.
- Action plan – this will be where the planning actions are detailed. Again, these can be very simple or extremely detailed. I prefer to keep this section as simple as possible, going into greater depth in a separate document, if required. The format should include the specific action, the reasons for the recommendation and who will be responsible for carrying out the action (this may include the client, the financial planner, their solicitor or accountant) and timescales for completion. As part of the action plan, the cash flow projections should be updated to show the effects of the plan on the clients projected financial future.
- Arrangement for review – a financial plan must be an evolving document, so it is essential to have regular reviews.
We often meet new clients who think they’ve been receiving financial planning but have never seen a financial plan. In reality, they have only been receiving financial advice.
However, without a plan it will be very difficult to understand the consequences and benefits of financial advice and, unfortunately, that is where things can go wrong.
A financial plan should be the centre of an ongoing, structured professional process and at the centre of a financial plan should be cashflow projections. More on that in my next blog.
