What is Financial Planning?

Last week Certified Financial Planning professionals and Accredited Financial Planning Firms™ across the UK were offering consumers free financial planning sessions as part of Financial Planning Week to shine the spotlight on financial planning, which differs to “financial advice” i.e. “financial planning” helps people to organise their money to achieve specific life goals, whereas “financial advice” focuses more on financial products. Last year’s campaign helped over 500 consumers with their financial planning issues.

The Chartered Institute for Securities & Investment (CISI) is responsible for organising Financial Planning Week and their website cisi.org/fpweek offers useful pointers, guides and information, a useful reference at anytime of year.

While Financial Planning Week is over, more often than not you will find that first appointments at a financial planning firm are free of charge and provide an opportunity to establish your requirements. Let us look at an example of a couple, potential new clients, coming in to see a financial planning firm for the first time:

Andy is a company director aged 42 and is married to Jo, 39, who is a primary school teacher, having returned to work after having their two children, now aged 5 and 3. Andy pays himself a small salary and tops up income from dividends. Jo’s earnings are less than they were as she is now part-time, but essential for the family to balance the books. They have a large mortgage which is not due to be repaid until Andy is 65. They are an ambitious couple and hope that both children will be able to go to university one day. Jo’s aunt recently died and left her an inheritance. Over the years, Andy, in particular, has acquired a number of pensions and investments but has no real idea of what they are worth.

By carefully discussing in a relaxed and comfortable environment, the financial planner amongst other things would be looking to establish with Andy and Jo:

What are their short, medium and long-term goals, financial or otherwise? For example, perhaps they want to be sure that they will be able to fund the children’s further education in years to come without scrabbling around at the last minute. Perhaps they would like to travel the world one day. Or start another business.

At what age would they like to be financially independent? In other words, when would they like the option of stopping work, even if they choose not to? And at that point, what income, in today’s terms, would they like, after tax, on a monthly basis? This could be a very different figure to their present requirements.

Are their current pensions and investments providing them with value for money, or are they underperforming and being overcharged for the privilege? The harsh reality is that failing to act in these circumstances can add years to the age of reaching financial independence.

What are Jo’s plans for the inheritance? Would it be wise to reduce the mortgage or would investing some of the money make more sense?

What about a disaster recovery plan? Andy is a high earner, but what would happen if he was unable to work through ill-health for example?

Above all, the aim when a financial planner meets new clients initially should be the creation of their own financial plan, with measurable and meaningful objectives. Essentially this will provide a financial roadmap for the clients which will give them complete clarity on the path they are following. And once done, rather than the plan gathering cobwebs, it is essential to revisit it each year because circumstances, legislation and a host of other things change each and every year.


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