What is Financial Planning?

I thought it wise to share with you what a financial planner actually does, because in my experience most people either have misconceptions or just don’t know.

I like to think of financial planning as the process where the client and planner get together to initially discuss the clients’ current situation. The financial planner and client then explore what’s important to the client and what their future goals, aspirations and objectives are. The planner then works out a strategy to meet these objectives and prepares a ‘blueprint’ known as a Statement of Advice or Financial Plan. Normally this covers retirement planning, eg. Informing a 40 year old of the steps required for him to retire at their preferred age of 60 with a retirement income of $75,000, in today’s dollars.

The actual steps involved may include:

  • Budgeting
  • Calculating the optimal level of salary sacrifice
  • Implementing savings plans
  • Tax effective investments
  • Government co-contribution
  • Government Pension maximisation strategies
  • Starting a transition to retirement
  • Self managed super funds (DIY)
  • Direct Shares
  • Property investing
  • Mortgage speed repayment strategies

Whilst the Financial Plan/Statement of Advice will hopefully show a detailed plan of action for the client to get to where they want to be, sometimes the goal is unrealistic and can’t be met. In this case the client is informed that there will likely be a shortfall, but that the shortfall can be limited by working a few more years, or foregoing their annual overseas holiday etc.

I consider the above process to be ‘holistic’ financial planning, meaning that it covers the client’s entire situation rather than just bits of it. Having said that, there are numerous occasions when clients see a planner for just one specific reason. For example, they may want advice on how best to invest an inheritance or other financial windfall, or they may only want to arrange income protection or life insurance. Whilst financial planners can help with these ‘one off’ situations, I think the majority of financial planners would agree that the clients best interests are served if they have a broader and more comprehensive meeting.

Without doubt the vast majority of people will benefit from visiting with a reputable financial planner and having a chat with them. In most cases the initial meeting is at the planner’s cost (no cost to you) and this enables you to meet with a few different financial planners before you decide who to entrust your financial future with.

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