What Is Financial Planning? Chapter 1 Tools & Techniques of Financial Planning Copyright 2009, The...
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What Is Financial Planning? Chapter 1 Tools & Techniques of Financial Planning Copyright 2009, The National Underwriter Company 1 Many Definitions of Financial Planning Cash flow planning OR Creating order out of chaos OR A deliberate and continuing process to achieve the financial goals of the client OR The development of a coordinated plan to achieve the client’s overall financial objectives OR Planning for tax, retirement,
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Transcript of What Is Financial Planning? Chapter 1 Tools & Techniques of Financial Planning Copyright 2009, The...
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 1
Many Definitions of Financial Planning
Cash flow planning OR
Creating order out of chaos OR
A deliberate and continuing process to achievethe financial goals of the client OR
The development of a coordinated plan to achieve the client’s overall financial objectives OR
Planning for tax, retirement, estate, investments and asset allocation.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 2
No two people’s problems will ever be exactly the same
Some people will need very complex and detailed plans
For others, just putting together a system that helps them control their cash and get their bills paid on time will be a successful plan.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 3
Most People’s Financial Problems Fall into These Categories
L Lack of Liquidity
I Inadequate ResourcesInflationImproper disposition of assets
V Value
E Excessive Taxes
S Special Needs
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 4
Lack of Liquidity
Not enough cash to meet current needs
Can cause a “fire sale” of illiquid assets
Definition: An inability to quickly turn capital assets into spend-able cash without incurring unreasonable cost. Note: Clients often overestimate
their need for liquidity.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 5
Inadequate Resources
Not enough capital or income to meet needs for death, disability, retirement, education, or medical expenses.
A common problem is clients who live above their means leaving inadequate resources for these important needs.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 6
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Inflation
The crippling impact of loss of purchasing power -- the ability of each dollar to buy goods or services.
Note: For long term planning, this is one of the biggest problems, and is often unrecognized by clients.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 7
Inflation is a Fact of Life
Since 1945, the purchasing power of the dollar has declined in every year but two – 1949 and 1950.
From 1900 -1970, inflation averaged 2.5%
1970s were time of severe inflation – rose to 6%, then peaked at 13.3% in 1979.
Recent inflation has averaged 2.5 to 3%.
*Source: U.S. Bureau of Labor Statistics.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 8
Improper Disposition of Assets
Transferring the wrong asset to the wrong person at the wrong time.
Example: Will leaves vintage sports car to 1 year old or a large sum of cash to an 18 year old.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 9
Value
The need to stabilize and secure the value of assets such as a business.
Example: A business is dependent on the owner’s contacts and personal friendships to stayin business – a risk of value.
I personally selected this just for you, Elizabeth….
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 10
Excessive Taxes
• Too much tax reduces investment return and makes it harder to achieve financial goals.
• Arranging the client’s affairs to minimize tax can help them realize their desires.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 11
Special Needs
Clients have varying psychological needs for security and safety.
They may want to provide security for people such as children or siblings with special needs.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 12
Resources Available
• Earned income• Investment Assets• Employer pension plans and Social Security benefits
Resources are a three-legged stool that support client needs. You need all three sources.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 13
Most Common Goals and Objectives
Current lifestyle
Retirement planning
Education
Parental issues
Estate planning
Special needs
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 14
You can’t have it all…
Set priorities and use strategies to achieve the most important goals.
Common Strategies: – Reduce current lifestyle– Invest more aggressively– Postpone the goal.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 15
The Financial Planning Report
The report to the client should include:
– ANALYSIS -- Where are you now?
– OBJECTIVES -- Where do you want to be?
– STRATEGIES -- How to get where you want to be.
– SUMMARY – Summary and assignment of responsibilities
Remember – Less is more.
Be concise.
Use pictures, charts and graphs.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 16
The Financial Report – Analysis Where You Are Now
Balance sheet
Cash flow analysisNormal situation – current
Normal situation – projected
Death of breadwinner
Disability of breadwinner
Retirement
Asset liquidity analysis
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 17
The Financial Report – ObjectivesWhere You Want to Be
Quantification of Goals:
– Increasing investable income
– Improving liquidity
– Reducing Risk
– Increasing income at death, disability or retirement
– Increasing financial security for heirs and satisfying charitable objectives
Remember: Goals must be quantified!
“Comfortable retirement” is vague.
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 18
The Financial Report – StrategyHow to Get Where You Want to Be
• Tax strategy
• Investment strategy
• Risk management strategy
• Wealth transfer strategy
What Is Financial Planning? Chapter 1Tools & Techniques of
Financial Planning
Copyright 2009, The National Underwriter Company 19
The Financial Planning Report – Summary & Responsibilities
Summary
Who must take action
What must be done
Timetable for Implementation
Date of Next Review
