What to Expect When Meeting A Financial Planner For The First Time

Although it’s important to have a handle on your financial position when going through a divorce, dumping five years’ worth of bank statements, bills, investment statements, insurance documents and Notice of Assessments on your financial planner’s desk should not be your starting point.

Your first meeting with a financial planner should start with a thorough explanation of the Financial Planning Standards Council’s 6 Step Financial Planning Process. All certified financial planners (CFPs) should walk you through the following steps, and it is imperative that you understand what’s involved before going through with a full engagement.

Step 1:  Establishing the client-financial planner engagement

It’s important to understand the rules of engagement and the respective roles of both the client and the financial planner throughout the process. There’s a shared understanding, obligation and responsibility of both parties to accurately disclose information. This should include a Privacy and Disclosure Agreement form that both parties should sign.

Within the Privacy and Disclosure Agreement form, the following areas should be addressed:

• The process to be followed;
• The roles and responsibilities of the financial planner;
• The planner’s methods of compensation;
• Conflicts of interest (or potential conflicts) specific to the particular client;
• Business affiliations;
• The planner’s personal qualifications; and,
• The client’s responsibilities in the overall process

Step 2:  Gathering client data and determining goals and expectations

Understanding your current financial position is of paramount importance to your financial planner. However, it’s equally important to understanding your future goals and objectives. Whether you want to pay down debt, buy a home or recreational property, have a family vacation every year, pay for your children’s university, or retire with a comfortable lifestyle, it’s important to be as descriptive as possible when describing the desired future you want for you and your family. It’s also important to have a realistic timeline for achieving your financial goals. A lot of this will depend upon the client’s needs, age, financial resources, and sophistication.

In addition to prompting and collecting the client’s responses to a financial planner’s questionnaire, additional documentation must be assembled, such as employee benefits statements, pension projections, information on investment holdings, business agreements, and other similar types of data.

A client’s goals and objectives should be S.M.A.R.T. – specific, measurable, attainable, realistic, and time-bound. For example, “We would like an after-tax monthly retirement income of $5,000, which begins when I turn 65 and lasts until my wife, who is younger, turns 90.”

Step 3:  Clarifying and identifying

This step in the planning process is the one that can distinguish a planner’s skill and ability to identify issues and opportunities specific to the client’s situation. The breadth of the analysis will cover areas specific to the client’s situation, but may include:

• Capital needs;
• Risk-management needs compared with current coverage;
• Investments;
• Taxation;
• Retirement;
• Employee benefits; and,
• Estate planning

In addition, it is essential that the planner consider special needs specific to the client’s situation, which could include:

• Divorce/remarriage considerations;
• Charitable planning;
• Adult dependent needs;
• Disabled child needs;
• Education needs;
• Terminal illness planning; and,
• Closely held business planning

Step 4: Developing and presenting the financial planning recommendations

At this step, the planner uses his or her experience, education, skills, and abilities to develop appropriate strategies that will effectively address the issues and opportunities identified in earlier steps. There will be multiple strategies available to address needs and objectives for the various areas of concern, including:

• Insurance;
• Investments;
• Tax;
• Retirement planning

It’s vital for your financial planner to gauge your attitude and values toward the following:

• Ability to tolerate volatility
• Expectations regarding rate of return
• Expectations regarding time frames
• Involvement in the investment process
• Liquidity
• Preferences among investments

These are vital to the equation, as few like to go through life “hanging by their fingernails”. Your comfort with the process is essential, but it’s also your planner’s responsibility to bring your expectations into alignment with reality.

Step 5:  Implementing the financial plan

The actual implementation plan will likely be summarized as a list of specific tasks or strategies, each with a target implementation date. The client will likely be entirely responsible for taking some of these steps, while some could be shared with the planner. Some tasks may require that a number of steps or phases be followed. Depending upon the terms of the client-planner engagement, the planner and the client may schedule follow-up meetings to monitor and ensure the timely implementation of the steps.

Many financial plans may uncover some matters that require prompt action in order to reduce serious, immediate risks, or to otherwise protect the client’s interests. For example:

• The client and his or her family may be at serious risk due to a lack of life, health, or general insurance coverage;

o Beneficiaries should be appointed on insurance plans, pensions, and RRSPs;

• The client may require a will, living will, and/or powers of attorney to ensure wishes are observed;

o The client may be paying unnecessary exorbitant interest on credit card balances;

• The client may require title transfers to achieve specific objectives (i.e. house should be held in joint tenancy or cottage title should be transferred);

o Buy-sell or other business arrangements should be implemented as soon as possible;

o The client may require that spouse and/or children be covered under benefits plans

Urgent matters must, of course, receive urgent attention. The conscientious planner will ensure that the client is made aware of the need to take appropriate steps as soon as possible.

The professional planner should record, in detail, each of the recommendations agreed upon, along with the name of the person(s) responsible for implementation, and the client should sign the document to acknowledge its accuracy. If the steps to be taken are numerous, complex, or involve important amounts of money, clients must have evidence documenting these responsibilities in their hands, both to avoid oversights and to prevent future recriminations, disputes, or lawsuits.

Step 6:  Monitoring the financial plan

As Step 5 is finishing, periodic meetings should be scheduled to monitor the progress of the plan. Future annual reviews will always focus on the effectiveness of the recommendations, as time goes by and as circumstances change. Developing a financial plan is not a one-time event.

On a final note, it is important to understand the credentials of your planner. If they are a Certified Financial Planner, they are obligated to follow the Financial Planning Standards Council’s 6 Step Financial Planning Process. Use this template as a guide for what to expect throughout the process, but also to help determine if your planner will help you achieve your needs in a satisfactory manner.

Reference – Financial Planning Foundations, Advocis (The Financial Advisors Association of Canada)