1. Chapter 7 The Systematic Process: Analyzing the Situation & Developing the Plan The Process of Financial Planning: Developing a Financial Plan Lytton, Grable & Klock 2006

2. The “Black Box” of Financial Planning + =

4. Step 3: Analyze & Evaluate the Client’s Financial Status Three sub-steps for each core content planning area: Step 3 1 : Analyze the current situation Step 3 2 : Review prospective planning strategies Step 3 3 : Develop client-based recommendations

5. Step 3 1 : Analyze the Current Situation 1.What is the client’s planning need/goal? Known needs Unknown, but potentially anticipated, needs Identified by planner or client Quantitative data Qualitative data

6. Step 3 1 : Analyze the Current Situation (cont’d) 2.What assumptions are relevant to the client’s planning need/goal? Premise, reasoned conclusions, facts, circumstantial evidence Related to Planning products and strategies Current or projected marketplace – tax, economic, political, legal, or regulatory environment Client’s personal situation Fully disclosed, mutually agreed upon, and realistic

7. Step 3 1 : Analyze the Current Situation (cont’d) 3. Can the client’s planning need be quantified? 4.How is the planning need currently being met? Identify and analyze products or strategies currently used Project outcome with current approach Project changes, if warranted

8. Step 3 1 : Analyze the Current Situation (cont’d) Repeat steps 1 through 4 for each core content planning area (see Figure 7.1): Cash flow/financial situation Income tax planning Insurance planning (life, health, disability, LTC, property and liability) Investment and asset management planning Education or other special needs planning Retirement planning Estate planning

9. Insurance Planning: An Example From Step 2: Data Gathering Client’s lifestyle Client’s occupation Client’s medical condition or history Impact insurance cost, availability, or need Without a comprehensive client profile, you can’t do a comprehensive job!

10. Information Available to Process Insights to the client: the “person” and the situation – quantitative and qualitative Who, why, for whom, what, how? Mutually agreed upon goals and outcomes Why, what, when, for whom? Results for each core content planning area Why, what, when, where, how, how much?

11. For Each Core Content Area Quantitative data analysis Qualitative and household needs assessment that might impact the area Planner’s knowledge of current or potential needs Scan of marketplace/environmental factors Planner’s collaboration with others

12. Step 3 2 : Review Prospective Planning Strategies Strategies: the universe of possible solutions ( see Figures 7.2 and 7.3 ) Product strategies: Use of specific product or product feature to meet the planning need/goal Procedural strategies: Focuses on a a process, service, or type of ownership to meet the planning need/goal

13. Factors Affecting Strategy & Recommendation Development

14. Step 3 3 : Develop Client-based Recommendations Goal + Strategy(ies) + Funding + Assumptions + Planning Engagement = Client-based Recommendation Answer the “5 Ws,” how and how much? Challenges the advisor’s logic and consistency with the client’s goals and situations Demands definition of funding and other implementation issues Supports sound plan development and client motivation

15. Step 4: Develop a Comprehensive Plan & Present Recommendations Well-designed plans have Thoughtful analyses Logical consistency Thoroughness Clarity of purpose Feasible, client-centered recommendations

16. Developing the Plan Culmination & Integration of the Planning Cash Flow Orientation + Goal Orientation Discretionary cash flow: Income remaining after all expenses are met Earmarked for goal funding or product purchase

17. Developing the Plan: Cost-Benefit Options Fully fund the most important recommendation, prioritize the others and use the remaining funds Fund all recommendations, over a staggered time and apply “new” assets Reconsider, “downsize,” and fund all recommendations at some level

18. Developing the Plan: Options (cont’d) Integrate recommendations, use multi- purpose strategies Prioritize, selectively fund, and eliminate or postpone other recommendations Increase funding Reduce spending Earn more (e.g., income, liquidate assets, reallocate)

19. Alternative Funding Options

20. Developing the Plan: The Planner’s Role Advisor Educator Mediator Helping the client decide about competing recommendations and available funding (discretionary cash flow, other assets)

21. When to Use a Liability Release? When the client’s decision Could jeopardize his/her financial future Could jeopardize the financial credibility of the planner Is clearly detrimental to the situation and repudiates the planner’s advice Protects the advisor from suitability or legal challenges for malpractice or malfeasance

22. Impact Analysis Insures that the results of a recommendation are fully considered Insures that funding is available, today and in the future Challenges the logic and assumptions (recall professional skepticism) See Exhibit 7.3 and 7.5

23. The Plan: Modular or Comprehensive For each core content area Describe the current situation Present all recommendations for the respective section Describe alternatives or alternative outcomes when one content area is linked with another

24. The Plan: Modular or Comprehensive (cont’d) For each core content area Conclude by illustrating the situation if all recommendations are implemented by recalculating Available discretionary cash flow Net worth Income tax situation (over view) Estate tax situation (over view, if applicable) Include projections in the plan or appendix, with appropriate disclaimers

25. Presenting the Plan Be genuinely warm, open, and welcoming Practice being an effective communicator Practice empathy Make a confident, competent impression by being prepared Involve the client

26. Presenting the Plan (cont’d) Plan the message and anticipate the response Motivate action with thorough, clearly defined, manageable steps Time it right Expect small changes Don’t make promises

27. Thinking Outside the Box Holistic judgments (recall problem framing) “interrelationships - everything influences everything else” Systematic approach “repeated use of forms and protocols” Recommendation Planning Checklist Recommendation Form Recommendation Impact Form

28. Thinking Outside the Box (cont’d) Triangulation (recall professional skepticism) “multiple (typically 3) perspectives” For example: information, stakeholders, goals

29. From Process to Practice How are the following used by Jane? Recommendation Planning Checklist Planning Recommendation Form Recommendation Impact Form Used by Jane to communicate information to Tom and Nyla? How would you use these forms with clients?

30. Summary Systematic process: a standard approach for comprehensive or modular plans as well as product sales Key to success: don’t overlook or overweight important client information Systematic process, holistic judgment, and triangulation support professional judgment