Developing a solid financial plan is the cornerstone of wealth management. It helps you envision your short and long-term life goals and becomes a roadmap to your financial future. The process of putting a financial plan together can be summarized as:
- Examine your current situation
- Set financial goals
- Measure your progress
Once you have a financial plan, it should be easier to make financial decisions and stay on track to meet your goals. It is also critical to have a plan when working with a financial adviser. The plan is the basis of knowing you and your adviser understand your goals and are working towards the same objectives.
The Certified Financial Planner Board of Standards, Inc. feels the process of creating a plan and implementing it is central to the profession. The CFP Board’s comprehensive update to its Practice Standards lays out a seven-step financial planning process that all CFP® Professionals must comply with beginning June 20, 2020. This change reflects the CFP Board’s vision for how advisers will interact with clients to serve their best interests.
The Seven-Step Financial Planning Process
- Understanding the client’s personal and financial circumstances
- Identifying and selecting goals
- Analyzing the client’s current course of action and potential alternative courses of action
- Developing the financial planning recommendation(s)
- Presenting the financial planning recommendation(s)
- Implementing the financial planning recommendation(s)
- Monitoring progress and updating
The advisers at Rodgers & Associates follow this process with the added focus on efficiency. We have a unique approach to creating efficiency, which involves coordinating all parts of a financial plan to:
- Minimize income taxes
- Minimize risk
- Minimize costs and expenses
- Keep the plan current and up-to-date with legislative changes and family/life changes.
Our Approach to Tax Efficiency
Our New Three-Legged Stool strategy creates flexibility regarding how money is saved and invested to minimize taxes today and in the future. Building a balanced three-legged stool may help to position our clients for potential changes to tax laws in the future. Managing an investment portfolio efficiently requires knowledge of current income tax rules and how they will specifically apply to each client. Many people make the mistake of focusing only on building wealth through investment returns. But there’s another side to the coin that we believe is equally important—the impact that taxes can have on accumulated wealth. Our advisers stay current on tax strategies that can help preserve wealth and aims to improve a client’s financial picture now and in the years to come.
Creating a Risk-Efficient Investment Strategy
Our advisers help clients structure an investment strategy that takes only enough risk to reach their financial goals. No investment strategy can be truly risk-free as equity exposure is necessary to provide growth to hedge against inflation. This is then balanced efficiently by using fixed-income investments to balance equities during market downturns. We only recommend broadly-diversified equity funds to avoid the damage that could be caused to a portfolio if a single company were to go into bankruptcy. The time to prepare for recessions and bear markets is before they happen, starting with a risk-efficient investment strategy.
Minimizing Expenses by Maximizing Efficiency
There can be many expenses associated with managing finances. Mutual funds and exchange-traded funds have expense ratios and other internal expenses. There are trading costs and transaction fees even if there isn’t a commission associated with the trade. Equity funds are screened for minimal expenses and trading can be reduced by using broadly diversified funds. Our advisers minimize expenses for clients by using individual bonds for the fixed-income investments in the portfolio. Individual securities have no ongoing internal expenses. Other efficiencies are created when reviewing insurance coverages, such as eliminating insurance that is no longer needed and adjusting coverages based on the current needs of the client.
Developing and Modifying a Financial Plan
A financial plan is not a static document. It is constantly evolving to meet the needs of each client, whose life dreams and goals are also evolving. U.S. tax laws have changed frequently since the income tax was created in 1913. Often, these changes can create both opportunities and traps. Family dynamics frequently change for many clients and the financial plan will need to adapt and change with the times.
We have found one of the biggest concerns for people planning their retirement is having enough money to live comfortably for the rest of their lives. No one wants to run out of money during their retirement years. Our focus on efficiency can help preserve wealth during retirement. By paying fewer income taxes, minimizing costs and expenses and implementing a strategy to minimize risks ahead of market downturns, we can help our clients achieve peace of mind.
Rick’s Insights:
- CFP® Professionals must follow the CFP Board’s seven-step process of creating and implementing a plan for clients.
- Creating financial efficiencies is one way to help preserve wealth through retirement.
- Financial plans must be flexible so they can evolve and adapt as needed in the future.
