Chapter 7 The Systematic Process: Analyzing the Situation & Developing the Plan
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Transcript of Chapter 7 The Systematic Process: Analyzing the Situation & Developing the Plan
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Chapter 7The Systematic Process:Analyzing the Situation &
Developing the Plan
The Process of Financial Planning:
Developing a Financial Plan Lytton, Grable & Klock
2006
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The “Black Box” of Financial Planning
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Systematic Financial Planning
Analyze & Evaluate the Client’s Financial Status
Develop Comprehensive Plan &Present Recommendations
Implement the Plan
Monitor the Plan, Implementation,& Goal Progress
Determine and Quantify the Planning Needs
Document and Evaluate Current Planning Efforts
Establish & Define the Relationship
Gather Data &Frame Goals and Objectives
Review Prospective Planning Strategies
Develop Client-based Recommendations
Analyze Current Situation
· Identify and Select Best Strategies to Meet Need
· Frame Recommendation Into: Who, What, When, Where, Why, How and How Much
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Step 3: Analyze & Evaluate the Client’s Financial Status
Three sub-steps for each core content planning area:
• Step 31: Analyze the current situation
• Step 32: Review prospective planning strategies
• Step 33: Develop client-based recommendations
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Step 31: Analyze the Current Situation
1.What is the client’s planning need/goal?
• Known needs
• Unknown, but potentially anticipated, needs
• Identified by planner or client
• Quantitative data
• Qualitative data
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Step 31: Analyze the Current Situation (cont’d)
2.What assumptions are relevant to the client’s planning need/goal?• Premise, reasoned conclusions, facts,
circumstantial evidence
• Related to • Planning products and strategies
• Current or projected marketplace – tax, economic, political, legal, or regulatory environment
• Client’s personal situation
• Fully disclosed, mutually agreed upon, and realistic
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Step 31: Analyze the Current Situation (cont’d)
3.Can the client’s planning need be quantified?
4.How is the planning need currently being met?
• Identify and analyze products or strategies currently used
• Project outcome with current approach
• Project changes, if warranted
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Step 31: Analyze the Current Situation (cont’d)
Repeat steps 1 through 4 for each core content planning area (see Figure 7.1):• Cash flow/financial situation
• Income tax planning
• Insurance planning (life, health, disability, LTC, property and liability)
• Investment and asset management planning
• Education or other special needs planning
• Retirement planning
• Estate planning
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Insurance Planning: An Example
From Step 2: Data Gathering
• Client’s lifestyle
• Client’s occupation
• Client’s medical condition or history Impact insurance cost, availability, or need
Without a comprehensive client profile, you can’t do a comprehensive job!
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Information Available to Process
Insights to the client: the “person” and the situation – quantitative and qualitative
•Who, why, for whom, what, how? Mutually agreed upon goals and outcomes
•Why, what, when, for whom? Results for each core content planning area
•Why, what , when, where, how, how much?
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For Each Core Content Area
Quantitative data analysis Qualitative and household needs
assessment that might impact the area Planner’s knowledge of current or
potential needs Scan of marketplace/environmental
factors Planner’s collaboration with others
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Step 32: Review Prospective Planning Strategies
Strategies: the universe of possible solutions (see Figures 7.2 and 7.3)
• Product strategies: Use of specific product or product feature to meet the planning need/goal
• Procedural strategies: Focuses on a a process, service, or type of ownership to meet the planning need/goal
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Factors Affecting Strategy & Recommendation Development
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Step 33: Develop Client-based Recommendations
Goal + Strategy(ies) + Funding + Assumptions + Planning Engagement =
Client-based Recommendation
Answer the “5 Ws,” how and how much?
• Challenges the advisor’s logic and consistency with the client’s goals and situations
• Demands definition of funding and other implementation issues
• Supports sound plan development and client motivation
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Step 4: Develop a Comprehensive Plan & Present Recommendations
Well-designed plans have• Thoughtful analyses
• Logical consistency
• Thoroughness
• Clarity of purpose
• Feasible, client-centered recommendations
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Developing the Plan
Culmination & Integration of the Planning
Cash Flow Orientation + Goal Orientation
Discretionary cash flow:
• Income remaining after all expenses are met
• Earmarked for goal funding or product purchase
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Developing the Plan: Cost-Benefit Options
Fully fund the most important recommendation, prioritize the others and use the remaining funds
Fund all recommendations, over a staggered time and apply “new” assets
Reconsider, “downsize,” and fund all recommendations at some level
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Developing the Plan: Options (cont’d)
Integrate recommendations, use multi-purpose strategies
Prioritize, selectively fund, and eliminate or postpone other recommendations
Increase funding• Reduce spending
• Earn more (e.g., income, liquidate assets, reallocate)
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Alternative Funding OptionsAre Resources Adequate to Fund Recommendations?
YES NO
Fund All Recommendations
Consider these options:· Prioritize Recommendations for
Immediate Funding· Prioritize Recommendations for
Staggered Funding · Downsize or Partially Fund One or
More Recommendations· Review Funding Options that Could
Satisfy Multiple Recommendations· Eliminate or Postpone One or More
Recommendations· Increase Funding Available for
Recommendations
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Developing the Plan:The Planner’s Role
Advisor Educator Mediator
Helping the client decide about competing recommendations and available funding (discretionary cash flow, other assets)
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When to Use a Liability Release? When the client’s decision
• Could jeopardize his/her financial future
• Could jeopardize the financial credibility of the planner
• Is clearly detrimental to the situation and repudiates the planner’s advice
Protects the advisor from suitability or legal challenges for malpractice or malfeasance
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Impact Analysis
Insures that the results of a recommendation are fully considered
Insures that funding is available, today and in the future
Challenges the logic and assumptions (recall professional skepticism)
See Exhibit 7.3 and 7.5
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The Plan: Modular or Comprehensive
For each core content area• Describe the current situation
• Present all recommendations for the respective section
• Describe alternatives or alternative outcomes when one content area is linked with another
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The Plan: Modular or Comprehensive (cont’d)
For each core content area• Conclude by illustrating the situation if all
recommendations are implemented by recalculating• Available discretionary cash flow
• Net worth
• Income tax situation (over view)
• Estate tax situation (over view, if applicable)
• Include projections in the plan or appendix, with appropriate disclaimers
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Presenting the Plan
Be genuinely warm, open, and welcoming
Practice being an effective communicator
Practice empathy
Make a confident, competent impression by being prepared
Involve the client
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Presenting the Plan (cont’d)
Plan the message and anticipate the response
Motivate action with thorough, clearly defined, manageable steps
Time it right
Expect small changes
Don’t make promises
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Thinking Outside the Box
Holistic judgments (recall problem framing)“interrelationships - everything influences everything else”
Systematic approach“repeated use of forms and protocols”
• Recommendation Planning Checklist
• Recommendation Form
• Recommendation Impact Form
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Thinking Outside the Box (cont’d)
Triangulation (recall professional skepticism)“multiple (typically 3) perspectives”
• For example: information, stakeholders, goals
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From Process to Practice
How are the following used by Jane?• Recommendation Planning Checklist
• Planning Recommendation Form
• Recommendation Impact Form
Used by Jane to communicate information to Tom and Nyla?
How would you use these forms with clients?
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Summary
Systematic process: a standard approach for comprehensive or modular plans as well as product sales
Key to success: don’t overlook or overweight important client information
Systematic process, holistic judgment, and triangulation support professional judgment