United States
Hong KongThe seven steps, in order, and why the order is examined
Understanding the client's circumstances; identifying and selecting goals; analyzing the current and alternative courses of action; developing recommendations; presenting them; implementing them; and monitoring progress and updating.
Seven steps, and the exam cares about the order more than the content of any single one.
The steps
- Understanding the client's personal and financial circumstances.
- Identifying and selecting goals.
- Analyzing the client's current course of action and potential alternative courses of action.
- Developing the financial planning recommendations.
- Presenting the financial planning recommendations.
- Implementing the financial planning recommendations.
- Monitoring progress and updating.
Note that presenting and implementing are separate steps. That separation appears in questions.
Why the order is the answer
A large class of questions describes a planner doing something out of sequence and asks what is wrong.
Recommending a product before understanding the client's circumstances. Selecting goals before gathering information. Implementing before presenting. In each case the answer is the step that was skipped, and knowing the sequence is the whole solution.
A planner meets a prospective client, hears one concern, and recommends a solution in the first meeting. Steps one, two and three have all been skipped. The recommendation may even be sensible, which is what makes the question work.
What step one actually requires
Obtaining qualitative and quantitative information. Not just the numbers - the client's health, family circumstances, values, attitudes, expectations and risk tolerance.
Where information is insufficient or inconsistent, the planner asks for more, and where the client will not provide it, decides whether the engagement can proceed. That is an examinable decision.
Step three is the one people compress
Analyzing the current course of action, then potential alternatives. Both halves.
The current course is the baseline: what happens if the client does nothing. Skipping it means no way of showing whether a recommendation improves anything, and questions do test the omission.
Monitoring is a duty, not a courtesy
Step seven has its own requirements: establishing with the client who is responsible for monitoring, what will be monitored, and how often.
Agreeing that in the engagement rather than assuming it is the examinable point. A planner who assumes they monitor, and a client who assumes the planner does, is a scenario waiting to be a question.
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Common questions
What are the seven steps of the financial planning process?
Understanding the client's circumstances; identifying and selecting goals; analyzing the current and alternative courses of action; developing recommendations; presenting them; implementing them; and monitoring progress and updating.
Why does the order matter on the exam?
Because a large class of questions describes a planner acting out of sequence and asks what is wrong. The answer is the step that was skipped.
What does step one require?
Obtaining both qualitative and quantitative information - health, family, values, attitudes and risk tolerance as well as the numbers - and deciding what to do where information is insufficient or inconsistent.
Why analyze the current course of action?
It is the baseline showing what happens if the client does nothing. Without it there is no way to demonstrate that a recommendation improves the position, and the omission is examinable.
What does monitoring require?
Agreeing with the client who is responsible for monitoring, what is being monitored, and how often. Assuming it rather than agreeing it is the failure the exam describes.