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How I Begin Working With Financial Planning Clients: Part 1

How I Begin Working With Financial Planning Clients: Part 1

June 01, 2022

Many people ask me, “What would it be like to work together in a financial planning relationship?” I think this is a very important question to answer because “financial planning” has become the new buzzword in the financial services industry. Like crypto and NFTs, people jump on the bandwagon without truly understanding what it means to enter into a financial planning relationship. Similarly, many financial advisors claim to provide this type of relationship, but what they really do is manage investments, or they create a watered-down version of what a comprehensive financial plan is supposed to be. 

That’s why I’ve put together this two-part article. My hope is that by outlining my process, it will better inform my clients about what to expect and how it might differ from other financial advisory relationships they’ve had in the past. In this first article, I will go through the first three steps in my process and how it informs the ongoing nature of the client-planner relationship.

What Is Financial Planning?

Financial planning is a comprehensive and ongoing process that seeks to help people make informed decisions about their long-term financial goals. It is a collaborative effort between the planner and the client, and recommendations will be tailored to each individual’s unique personal and financial circumstances. 

As a CERTIFIED FINANCIAL PLANNER™ professional, my process is rooted in the CFP Board’s planning framework. The CFP Board is the governing body of the CFPⓇ certification, and they developed the seven-step planning process, which is continually amended to reflect the latest innovations in the financial planning profession. I have built my process on the fundamental steps they outline:

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Step 1: Understanding the Client’s Personal & Financial Circumstances

This step is really broken down into two substeps. First, I will formally establish a professional financial planning relationship with a client by outlining a detailed list of services I expect to provide, as well as how I will be compensated. I charge a flat annual fee for financial planning services broken into quarterly payments, and I also offer investment management as an optional add-on. This is an additional annual fee (also paid quarterly), expressed as a percentage of the assets I will manage.

Clients will also receive a copy of all appropriate disclosure documents as required by law. Neither my firm nor I accept any compensation from any third party. This is strictly to reduce potential conflicts of interest. We always adhere to a fiduciary standard for our clients, and our duty of loyalty is always to them. We are paid for our best, conflict-free advice.

Once the financial planning relationship has formally begun, I will schedule “Discovery” meetings in order to learn more about my clients from both a personal and financial perspective. This process usually takes several meetings to thoroughly assess a client’s current circumstances, including work, family life, health, income, expenses, investments, insurance, personal values, and financial goals. I also strive to learn more about how their attitudes and beliefs around money have been formed or shaped by past experiences. 

A key objective for me during this time is to identify a “financial purpose,” which can be articulated, refined over time, and used to help guide the clients through the significant (and potentially difficult) financial decisions they will make during our relationship together. I believe that getting to understand my clients in this way early in our relationship allows me to be the most effective consultant, coach, and guide to them throughout our journey together.

This is a very detailed process that involves gathering many documents that contain sensitive financial and personal information. It is of utmost importance that our relationship is founded on mutual trust so that collection of this information does not become uncomfortable or awkward. Here is a basic list of the documents you can expect to provide as part of the initial discovery process:

  • Personal information for everyone involved in the engagement, including any people for whom the clients provide material support (parents, children, other relatives, etc.)
  • Current health status and any issues that might impact life expectancy
  • Current employment status(es), including copies of recent pay stubs, any employment-related benefit information
  • Any business investments, as well as corresponding tax, returns, organizing documents, any succession plans, etc.
  • Any owned real estate, whether for personal or investment purposes, and corresponding mortgage information
  • Information related to any current insurance
  • Any current estate planning documents including wills, trusts, powers of attorney, any advanced medical directives
  • Copies of the previous two years’ tax returns
  • Recent statements for all bank, savings, investment, and retirement accounts, including any employment-related investment accounts, such as 401(k), 403(b), or 457 accounts
  • Most recent statements from Social Security; recent statements from any other defined-benefit pension provider; information related to any other “retirement” income source (e.g., annuities)
  • Information related to current spending 
  • Information related to any other sources of income or cash flows in or out.

This is an extensive list of documents that takes time to gather. It can be overwhelming for many clients, but this is by far the most important step of the whole process. The financial plan will only be as accurate and thorough as the information provided. I help my clients gather this information in whatever ways I can, but much of it relies on their efforts.

Step 2: Identify & Select Goals

The next step is to identify and select the financial goals that we will be working toward throughout the relationship. This process often happens in tandem with the first step. 

Together, we will develop a Statement of Financial Purpose that will help us develop goals that the client is motivated to accomplish. The information on past experiences and values around money will help me uncover the “why” behind what a client wants to achieve. I have found that many times it is better to work together with clients to identify their goals (the “what”) once I have learned more about them (and their “why”). 

This step is accomplished through a series of probing questions and follow-ups during each of our first meetings together. We continue to revisit and revise (as needed) the client’s goals regularly.

Step 3: Analyze the Client’s Current Course of Action & Potential Alternatives

After receiving the bulk of the information required in steps 1 and 2, I will produce a detailed analysis of a client’s current situation within two to three weeks of receiving the data. This analysis will be provided and discussed in our first “Financial Planning” meeting and will be updated regularly. 

The analysis will be structured to cover the following topic areas: 

  • General Financial Planning
  • Risk Management & Insurance Planning
  • Estate Planning
  • Tax Planning
  • Investment Planning
  • Retirement Planning 
  • Education Planning

There is usually a great deal of discussion during the presentation as clients ask questions, provide feedback, and remember additional information. Regardless, this meeting will provide significant movement forward in the overall organization of the clients’ financial lives and the development of a comprehensive financial plan. 

At this stage, our analysis and discussion have usually uncovered many areas of the clients’ financial lives that need attention. However, many clients struggle to ever reach this stage. Either they do not complete the required document gathering, they procrastinate in providing documents or scheduling follow-up meetings, or “life happens” and things drag out, and clients lose momentum. 

Once we reach this stage, I believe it is important to step back, take a deep breath, and congratulate the clients on taking a significant step toward improving their financial lives.

Learn More

These first three steps are just the beginning “onramp” of the ongoing financial planning process. To learn more about how I work with my clients, be sure to read next month’s article, “How I Continue Working With Financial Planning Clients.” I will describe how I partner with them to complete steps 4 through 7 of the process and develop an ongoing process for helping clients make sound financial decisions.

If you would like to discuss how financial planning can benefit you and improve your financial life, email me a Mike@wealthmatters.com or call (707) 428-5500 to get started.

About Mike

Michael Hathaway is a fiduciary financial advisor at Epsilon Financial Group, Inc., an independent, fee-only wealth management firm. Mike has worked in the finance industry for more than 20 years and brings a broad wealth of knowledge and experience in sophisticated financial planning to help his clients make sound financial decisions. He is known for being compassionate, caring deeply for his clients’ well-being, and thinking creatively to help clients attain their financial goals. He prioritizes building long-term relationships and takes the time to listen, understand, and explain so that his clients feel confident in their financial plan. Mike is a CERTIFIED FINANCIAL PLANNERTM, Chartered Financial Analyst® (CFA®), and Accredited Investment Fiduciary® (AIF®) professional; he has a bachelor’s degree in cybernetics from UCLA and an MBA in finance and accounting from the University of Virginia. When he’s not working at Epsilon, you can find Mike enjoying anything related to exercise and fitness. He especially loves activities in the great outdoors, such as mountain biking, camping, hiking, and snowshoeing. In the fall of 2016, Mike successfully climbed to the top of Mount Whitney in a single day, the highest peak in the continental United States. To learn more about Mike, connect with him on LinkedIn.