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FINANCIAL PLANNING
Your First Financial Plan
If you were about to build your dream home would you first employ an architect to draw up some plans, or would you rush down to the local builders merchant and buy up this weeks special offers?
The same could also be said when it comes to planning your financial future and the last thing on a financial planner's mind when you first meet should be the sale of a product - the client's needs and providing relevant advice via a solid financial strategy are far more important considerations.
Most financial services companies, particularly unit trust companies offer a full suite of unit trust funds to suit almost every investment need, from growing capital to providing income.
There is also a tendency by some local institutions to offer all sorts of incentives, from mobile phones to getting rebates when buying items or services from particular department stores, all this clouds the issue and has nothing to do with financial planning.
Such incentives and loyalty schemes offered to you if you sign up for a product are designed to help the sales people, who are trained to sell financial products rather than to analyse your true financial needs.
A professional financial planner should help you figure out where you stand financially and then find the most appropriate products for your needs. You should expect a financial planner to:
- Design a cost-effective financial strategy to meet your short-term and long-term goals;
- Recommend investments to meet that strategy and ensure that you have the correct amount of life insurance or health cover should you die or become incapacitated;
- Design an estate plan relevant to your needs to ensure that if you die, your dependants will be financially secure.
There is no such thing as a "one size fits all" plan. Many organizations however would have us believe otherwise. As a result, what we are seeing now is marketing gone mad with the product being sold without first knowing something about the client and people being motivated in to action for all the wrong reasons.
Firstly be honest to yourself, free plans, free advice, free gifts or special offers are a fallacy when it comes to investment products; you invariably just end up paying in a different way.
There are 10 steps to financial planning and the actual selection of a product only comes in step nine - "not step one".
The 10 steps are:
1. Establishing contact: Your adviser tells you about him or herself, his company, his or her responsibilities, your responsibilities, the services that will be provided and any contractual arrangements, including how your adviser will be paid.
2. Getting to know you: Your adviser identifies your financial needs and goals.
3. Getting information: Your adviser establishes your financial situation, which includes information on any financial products you have at present.
4. Analysing and evaluating: Your adviser uses the information gathered in steps two and three to assess your current situation; determine what is required to meet your goals and what priorities you should have; identify any problems and opportunities; and ensure that your finances are structured in a way that attracts the least tax.
5. Developing a plan: Your adviser assesses what needs to be done to improve your financial situation, basing his or her recommendations on the information you have provided.
6. Presenting the plan: Your adviser presents you with a plan outlining the choices and priorities. You must then make the choices.
7. Winning your approval: The plan will contain recommendations to ensure that your needs and those of your dependants are met when you die or if you are disabled or contract a dread disease.
The recommendations will provide for your retirement and investment needs and deal with how you can protect your business interests. They should include an estate plan and a will, which minimise your estate duty and ensure that on your death, your assets are distributed efficiently to your heirs, and your dependants' needs are met. The tax implications of any changes in your financial plan should also be considered.
8. Implementing the plan: If you agree to the plan, your adviser will co-ordinate its implementation and, if necessary, use experts such as stockbrokers, accountants and lawyers. You will be told which aspects of your plan your adviser will implement and which will be out-sourced.
9. Selecting relevant products and services to implement the plan: This will include deciding on the type of investment, the asset classes of the investments and the underlying investments. When this has been decided, the actual products and the companies that will provide them will be chosen.
It is only now that any product offers should be considered, but they should not be the driving factor.
10. Monitoring and re-evaluating your plan: You and your adviser must regularly monitor and re-evaluate the plan, taking into account changes in your circumstances.
Financial planning is a serious issue that should not be based on buying products off a shelf, particularly when the products come with incentives that have nothing to do with your financial planning.
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