Six-step financial planning process

Six-step financial planning process

This article first appeared in The Weekender/Business Day on 3–4 June 2006.

What’s the purpose of the six step financial planning process? Well, consider this frightening thought – that wealthy economies such as those of the UK are considering increasing the retirement age to 68. Australia has already increased the maximum age you can invest in retirement annuities to 75.

Their concern is motivated by the possibility that the retirement funding requirements of their populations will soon be insufficient. The problem is exacerbated by the fact that we are living longer than before and we therefore need more retirement capital.

In SA, we do not have anywhere near to their social budget per capita. This is where professional financial planning can help.

It is globally accepted that there is a financial planning process that must be followed that ensures you receive sound financial planning advice.

In my opinion, any financial planner worth his or her salt will implement the six-step financial planning process. The Financial Planning Institute of SA also advocates this method. Let me briefly explain each of the steps.

The Six-Step Financial Planning Process

  • Step 1 is the initial discussion with your financial planner and this helps establish the working relationship. At this stage your financial planner should ensure that you understand the six-step process, identify your needs, agree on the level of advice you require, explain his or her role, discuss payment for services and obtain consent to proceed with advising you.
  • Step 2 is about gathering information on your current financial situation, commitments, short- to long-term financial goals and your circumstances.
  • Step 3 is the financial assessment. It should involve a workshop to assess your current financial situation. This may involve an analysis of your assets and liabilities, cashflow, current risk cover, investments and tax strategies. This allows you to investigate solutions to problems and identify strategies to capitalise on opportunities.
  • Step 4 requires that your financial planner offers strategic recommendations that address your goals based on your information. The recommendations should be explained to you in such a way that you understand them and should also be recorded in a written record of advice.
  • Step 5 is the implementation stage. Once you understand and are completely satisfied with the recommendations, you will need to authorise your financial planner to proceed with the implementation of the financial plan. After implementation, you and your financial planner will review the final documentation for accuracy and ensure that the plan has been implemented as agreed. Your financial planner should provide you with an updated summary of the consolidated financial plan. The first five steps of the six-step financial planning process are easy, since they are essentially a mathematical exercise. The final step requires skill and experience to drive the performance of your resources.
  • Step 6 requires that your financial planner offers ongoing care. This is not an attempt to sell you a new product – it is a service that is separately costed in a fee-based environment.

The service must be customised to your requirements; regular review meetings will be scheduled over the ensuing years.

At these meetings, your agreed strategies and investments are proactively reviewed to ensure that they continue to meet your financial objectives.

The review process will also provide you with an opportunity to ask your financial planner any questions you may have.

Reviews should be requested when you experience any life changing events – for example, the birth of child, sickness or divorce. This will enable your financial planner to adjust your plan accordingly.

It has been my experience that positive investment returns are harnessed when the review process has been followed and investors have not panicked and switched out of temporary under-performing assets. When investments don’t perform, I work harder to coach against actions triggered by fear or greed.


Debbie Netto-Jonker CFP® is the founder of Netto Invest and was Financial Planner of the Year in 2001.

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