When considering using the services of a financial planner, it is important to familiarise yourself with not only what they do or what you expect from them, but also how they work.
According to the Financial Planning Association of Australia (FPA), there are six (6) key elements when it how it comes to the workings of financial planning[1]. The better you are prepared and understand this process, the better you can maximise the outcome in your sessions and results.
DEFINING THE SCOPE OF ENGAGEMENT
Firstly, your financial planner needs to take the time with you to define the scope. This is to say how they work, what they can do, can’t do and if they believe that they can assist you through engagement.
As previously mentioned, the financial planner may review your current situation and advise you spend 6-12 months with a financial coach to get any debts under control, potentially get some more funds in savings or a combination of both before you get started with the engagement.
By defining the scope of engagement, it is always ideal to get this in writing, so you can take the document away, re-read and ensure you understand the next phase in your financial journey.
IDENTIFYING YOUR GOALS
Much of financial planning is about identifying your goals. Remember back to the start of this eBook, in which we outlined the importance of treating yourself as a business with goals, objectives and benchmarks to achieve? This is how financial planning works.
Without goals, you have nothing to benchmark both you and your financial planner’s performance upon. Again, these need to be S.M.A.R.T, that is Specific, Measurable, Achievable, Relevant & Timely. So don’t put down you want to purchase a $750,000 Rolls Royce within 6-months of starting with a financial planner – unless you have the realistic capacity to achieve that within that time.
Clearly defined financial goals hold you and your financial planner to account, but also allow you to iterate & assess these as your financial journey continues.
ASSESSING YOUR FINANCIAL SITUATION
Financial planners, thanks to their continuing education and training, are experts in reviewing your current financial situation.
This assessment includes reviewing how much cash in the bank you have, debt (both bad debt and good debt) liabilities, superannuation, insurance levels and any assets. This allows them to provide you with a snapshot from which to move your financial plan forward. It also enables your financial planner to review your capacity to invest, divest, upgrade products and services to maximise return and minimise interest/commissions paid to third parties.
PREPARING YOUR FINANCIAL PLAN
Once your planner has your goals, current situation and has clearly defined the scope of engagement, they will now go about preparing your financial plan.
This should include methods & strategies, products & services and advice on how to take yourself from your current situation – which they have just assessed – toward to goals and objectives you have laid out.
Within this plan, as a client, you have every right to ask questions. For example, a financial planner may suggest you change your superannuation fund. You need to ask why, look at short, medium and long-term returns of both funds, and ensure that you are changing for reasons that suit you – not just the financial planner.
Although the Royal Commission into the Banking, Superannuation and Financial Services Industry, has straightened out a lot of the ‘pushing of third party services’ that are not appropriate or offer the greatest financial return to financial planners, commissions and payments still exist. It is always important that you as the client review all the PDS (product disclosure documents) and like-for-like performances of the funds to ensure you are getting solutions that suit your needs.
IMPLEMENTING THE RECOMMENDATIONS
Once a plan has been presented, and both you and your planner are comfortable, it is time for implementation.
This could mean the establishment of new bank accounts, moving superannuation to a new provider or SMSF (Self-Managed Super Fund), investment in funds, setting up trust accounts, shares or other financial instruments and so on.
At this stage, your financial planner more than likely will be working across your financial and professional service providers to get everything established – such as your accountant and lawyers.
REVIEWING THE PLAN
One of the most important areas of any financial plan is that it stays current. Your financial circumstances may change, they may get better, you may have a windfall, you may inherit some money – meaning you will constantly need to review your plans. Conversely, you may lose your job, you may separate from your spouse or suffer financial hardship through bad investments.
As such, you and your planner need to regularly review the plan, to ensure you are on track for achieving the goals, and if circumstances do change, then iterate the plan accordingly to ensure that you can manage what is required to get you where you want to go.
[1] https://fpa.com.au/about-financial-planning/how-it-works/