chapter 9 developing a product: writing a financial plan the process of financial planning:...
TRANSCRIPT
Chapter 9 Developing a Product:
Writing a Financial Plan
The Process of Financial Planning:
Developing a Financial Plan Lytton, Grable & Klock
2006
Writing Style & Voice
Writing style: Consistently used, distinctive, personal approach to communicating in writing
Should reflect awareness of the primary information processing styles:• Visual
• Auditory
• Kinesthetic
Information Processing Style Guidelines
Visual (eyes)• Pictures, graphs, charts, and other
visual aids
Auditory (ears)• Discuss, talk, review
Kinesthetic, experiential (actions)• Engage the content through web-
based calculators, software simulations, “to do” list
Writing Style & Voice
Voice conveys an image of the writer and the message through• Author’s point of view
• Author’s choice and use of pronouns
• Author’s choice of active or passive verb tense
What Voice to Use?
A knowledgeable expert with technical expertise; An objective professional serving as a fiduciary; A trusted confidante and friend; A counselor, coach, referee, challenger, or
educator; A business person or service provider with good
customer relationship skills; A trusted family friend; or A motivator and “voice of reason” for financial
issues.
Exploring Voice
1. Point of view• Impersonal – factual message
• Personal – personalized message
2. “Person”• First person: I, me, my, we
• Second person: you, your
• Third person: she, he, her, him, his, they, them, their
• “One” – impersonal and gender neutral
Objective, Subjective & Possessive Case Usage
Case Singular Usage Plural Usage Subject or Subjective
First Person Second Person Third Person
I You She or He
We You They
Object or Objective First Person Second Person Third Person
Me You Her or Him
Us You Them
Possessive First Person Second Person Third Person
My Your Her or His
Our Your Their
Exploring Voice (cont’d)
3. Verb form• Active verb tense: Shorter, direct more
forceful and personal sentences.• “Yogini purchased a $1M term policy.”
• Passive verb tense: More impersonal, detached sentences.• “A $1M term policy was purchased by Yogini.”
As a Trusted Coach & Educator
To be more objective:• Plural possessive and use of “one”
• More passive sentences To be more informal, but personal:
• Pronouns and client’s first name
• More active sentences Use a consistent voice, but don’t jolt the
client between educator and coach
Plan Style & Format
Remember,
anything that can assist a client in accessing and interpreting a plan will enhance the
probability that a client will buy into the ideas presented and, most importantly, ultimately
implement the recommendations.
Rules for the Plan
Functional format with easy to read fonts, that are repeated throughout the plan
Consistency in the formatting, writing style, and voice from one plan section to another
Format to maximize the mix and impact between color and black and white
Use a plan cover that sends the right message Check and recheck for errors, omissions, and
grammar
Rules for the Plan (cont’d)
Each core content section within a comprehensive plan should be comprehensive
Write well, but clearly – and provide resources Make sure the plan follows the process Use a combination of pre-scripted and client
specific information – set in the current context Document, document, document!
A Well-Written Financial Plan Is:
Integrative
Realistic
Synergistic
A Well-Written Financial Plan Is:
Integrative: The sections link together, as do the recommendations
Realistic: Goals, analysis, and recommendations match the client –including assumptions and marketplace. Can be implemented with or without the advisor.
Synergistic: Comprehensive financial life roadmap – the “whole is worth more than the sum of the parts”
Components of a Plan
Plans vary with the business model of the advisor and the services, products delivered
Sequencing may vary, but all good plans include these “bones”
I. The Cover Page
Should include:• The firm’s name and address
• The planner’s name
• A brief firm or planner vision statement
• A phrase such as “A Comprehensive Financial Plan Prepared for [Client’s Name]”
• The term “confidential” clearly indicated
• Any applicable disclosure statements as required
• The date of the plan
II. Letter to the Client
Informational message that varies with the business model of the advisor, the services/products delivered, and the client relationship. Letter may include some or all of the following:• A personal, friendly overview
• An outline for the future relationship
• Statement of compliance and legal disclosures
Signed and dated by the advisor
Personal, Friendly Overview
Reintroduce the planner/firm to the client Restatement of commitment to goal
accomplishment Review of the planning process Review of the planner/firm’s core values Statement of commitment to an on-going client
relationship
Outline For The Future Relationship
Timing of periodic reviews; Expected client preparation for review meetings
(e.g., updating client information by mail or online); Provision of quarterly reports or other client
updates; Availability of the planner or other staff for client
assistance; Mailing of newsletters; or Access to the firm’s other services
Statement Of Compliance & Legal Disclosures*
Confidentiality of client data – privacy statement Confidentiality of planning relationship Investment performance disclaimers Disclaimers for confirming advice, working with
other professionals
*May be on a separate disclaimers page in the Introductory Materials Section
III. Copy of the Original Client Engagement Letter Contractual letter signed by the client outlining
responsibilities of the advisor and client
If signed earlier, then a copy rather than another original may be included in the plan
May appear at the end of the plan as confirmation for the advisor to proceed with implementation
Messages in the Engagement Letter
Explain the scope of the engagement and expectations for client and advisor:
• Plan only, and perhaps an overview of components or scope of review
• If implementation, then how, by whom, and when
• Retainer or concierge services
Messages in the Engagement Letter (cont’d)
Disclaimers• Investment disclaimers
• Tax and other legal services disclaimers
Plan, analysis limited to client provided information
IV. Table of Contents
A navigational tool that explains:• Plan organization and contents
• Availability of supporting documents (analytical or educational)
• Page numbers
Color coding (page numbers, tabs, etc.) if used, should improve, not hinder the navigation
V. Other Introductory Materials
Designed to foster client confidence, planner credibility and client commitment. May have been in other marketing materials, so may be omitted or summarized in the plan.• Mission/vision statement
• Statement of principles or core values
• Ethics statement
• Privacy statement
• Investment policy statement
Mission/Vision Statement
Mission: Focuses on market segment and the strengths, weaknesses of the firm to serve that target market
Vision: More global statement of the firm’s aspirations and the principles and values that govern the firm’s operation
Mission/Vision Should “Speak”to the Firm’s Potential Clients
We strive to bring our clients financial peace of mind. Our goal is to identify optimal recommendations to help guide our clients in reaching their financial goals and objectives. We do this by building trusting, long-lasting client relationships that always focus on the best interests of our client—not our own. It is our goal to give the best guidance and advice to help our clients consistently make sound financial decisions in pursuit of their hopes and dreams.
Statement Of Principles Or Core Values
What does this planner/firm stand for?• Customer service
• Teamwork
• Professional expertise
We expect a high level of customer service and satisfaction from our staff.
We believe that planning through teamwork provides better service.
Ethics Statement
CFP Board of Standards, Inc. Code of Ethics• Integrity
• Competence
• Objectivity
• Fairness
• Confidentiality
• Diligence
• Professionalism
Professional association code
Privacy Statement
Likely provided with initial client information, may be included in the plan
May be required by law – at initiation of the business relationship and with annual updates
States policies on how data will be used, shared with other professionals with disclosure and consent, and confidentiality maintained
Investment Policy Statement
Signed by planner and client to establish guidelines for the appropriate and mutually agreed upon management of the client’s funds
Provides a transparent set of investment policy parameters that provide discipline for the planner and the client
VI. Client Profile, Summary of Goals, Assumptions
Establishes the foundation, or grounding, for the plan development
Sets the parameters, or constraints, on the planning process
• Resources
• Goals
• Assumptions
One last opportunity for client validation
Client Profile
Full demographic profile, and final check for accuracy• Names, address
• Employment
• Ages, health status
• Other pertinent information
Summary of Goals
Clearly defined and perhaps ranked, mutually agreed upon goals• Specific
• Measurable
• Attainable
• Realistic
• Trackable Guide the plan and the implementation
Assumptions
Summary of all assumptions, although they may be repeated in respective sections.
•Factual information about the household or other planning issues
•Assumed information about the household or other planning issues
VII. Executive Summary or Observations & Recommendations
Purpose of the Plan• Key goals and objectives
Methods Used to Analyze the Situation• Assumptions used
Results of the Analysis Recommendation(s)
• Projected financial outcomes Implementation Strategies for Action Timeline for Implementation
How Much of the Story to Tell?
May be general or detailed – which impacts the remainder of the plan
May be organized by goals or core content planning areas
Keep a balance between the summary and the core content planning sections
“Title” of the summary and the approach should reflect the voice of the firm and the clients served
VIII. Individual Core Content Planning Sections
Each core content planning section should be consistently similar –establishes a “routine” for the client and the firm
Assume the client has limited knowledge, unless confirmed otherwise
Educate and motivate – don’t overwhelm! Use text and graphics + appendices
VIII. Core Content Planning Sections (cont’d)
Cash Flow Analysis
Net Worth Analysis
Tax Analysis
VIII. Core Content Planning Sections (cont’d)
Insurance/Risk Management Analysis• Life insurance
• Health and disability insurance
• Long term care insurance
• Property and liability insurance
• Umbrella insurance
• Other insurance needs
VIII. Core Content Planning Sections (cont’d)
Investment Analysis
Retirement Analysis
Estate Planning Analysis
VIII. Core Content Planning Sections (cont’d)
Specialized Analyses• Educational funding
• Planning for special needs
• Charitable giving
• Trust management
• Long-term care planning
• Family business continuation
• Refinancing scenarios
• Saving for special objectives
Core Content Planning Section: An Outline
I. Overview of core content area and definitions
II. Restatement of planner-client assumptions
III. Review of the analysis of client’s current
situation• Observations about the current situation
• Assessment of the planning needs
• Assessment of the current planning efforts
Core Content Planning Section: An Outline (cont’d)
IV. State financial planning recommendations that are actionable and answer:• Who?• What?• When?• Where?• Why?• How? • How much?
Example Recommendation
In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.
Example Recommendation
In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.
Core Content Planning Section: An Outline (cont’d)
V. Compare projected recommendation outcome(s) to current situation• Document the method used
• Apply mutually agreed upon assumptions
• Conduct a fair comparison – legitimate and conservative
VI. Suggest alternative recommendations and outcome(s) where appropriate• Use the options to inform and expand the options,
but don’t overwhelm
Graphic Comparison of Projected Outcomes
College Funding Projections
($40)($20)
$0$20
$40$60$80
$100
10.5 12.5 14.5 16.5 18.5 20 22
Th
ou
san
ds
Child's Age
College Tuition Expense
Proposed Account Balance Projection
Original Account Balance Projection
Core Content Planning Section: An Outline (cont’d)
VII. Provide implementation and monitoring plan• Explain the source of the cash flow or assets to be
used to fund the recommendation
• Give specific implementation advice and establish responsibility
• Tables, “to do” lists, or a timeline can be helpful to inform and motivate the client
IX. Implementation & Monitoring
Summarizes, integrates and prioritizes all of the strategies and actions required to implement the plan
May include narrative, tables, charts, graphs, or “to do” lists
Goals of this section: • To rank and fund the recommendations
• To ensure that action occurs
Example Implementation TableWhat Who When How Strategy Effect on
Annual
DCF
Contribute the $4,000 annual maximum to a Roth IRA.
Doug and Nancy
Before the end of 2006
Contact your broker to open the Roth IRA accounts, or our firm will be glad to assist with opening these accounts. Funding will come from both your excess discretionary cash flow and money in your money market account.
Saving for retirement by using a tax-advantaged investment account that offers the added benefit of tax- and penalty-free withdrawals under certain circumstances.
Post-tax-$8,000
Net Effect of Retirement Planning Recommendations -$9,200
Discretionary Cash Flow (DCF) After Implementing Recommendations $7,345
Implementation & Monitoring Sets the Stage For….
Implement the plan in a timely manner Guide future monitoring meetings Guide future progress assessments Guide future needed changes in response to
changes in the client’s situation, goals, or the economic/legal marketplace
X. Client Acceptance Letter or Client Engagement Letter
Depending on the business model, the client engagement letter may• Formalize the business agreement
• May be included as a record of the earlier transaction
• May be used alone or in conjunction with a client acceptance letter
• May appear only at the beginning of the plan
The Client Acceptance Letter
Informational or contractual message that varies with the business model of the advisor, the services/products delivered, and the client relationship
Sometimes called “acknowledgement of delivery”
Signed and dated by the client Reiterates that the plan reflects the
information provided by the client
XI. Appendices
Supplements to educate the client
• Supporting calculations, spreadsheets, analysis
• Informs the client of the mathematical framework
• Increases transparency of the analysis
• Protects against claims of unsuitability, errors, or omissions if the analysis matches the assumptions
• Educational articles
• Glossary of key terms (optional)
• Document – with page references, footnotes, etc.
To Write Good Plans…
Practice the craft of planning and writing – get client feedback.
Check and recheck….• Use Figure 9.5
Financial Plan Review Checklist
Summary
Good plans • capture the interest, trust, respect, and
commitment of the client.
• integrate the client with a realistic plan for financial well-being.
• provide a synergistic financial road map to the future.
• standardize the internal processes for working with clients.