LIRA’s, LIF’s, OAS, CPP, LRSP’s, DC pension plans and DB pension plans, Non-registered funds and Taxable Accounts are all financial planning acronyms which I jokingly tell my clients that my industry invented to confuse them so that they needed to get in touch with me to understand their financial picture better. Most laugh. But some let out a huge sigh and they attempt to pull together their statements and figures to try to make some sense of it all. Further more, some relish in the exercise but some feel it is a necessary evil, a drudgery of sorts.
More verbiage from my industry is “comprehensive financial planning”. What’s the difference between financial planning and comprehensive financial planning one might ask. Financial planning can deal with one specific issue with regard to your financial situation but it may not be comprehensive. If you are anticipating a huge tax bill this year but it’s an anomoly you might want to ask a financial planner how you can minimize the tax hit and that would be financial planning. It’s not comprehensive, however.
In order to have a comprehensive financial plan there is a six step process that every financial planner must adhere to.
Step One ~ Setting Goals and Objectives ~ Most of my clients come to me in times of transition. It could be that they are divorcing, retiring, won a lottery, selling a business and the like. They need some guidance as to how to deal with the transition in their life from a financial perspective.
Step Two ~ Data Gathering ~ Your Financial Planner will need all your financial information to move to the next step. It’s all the financial reporting documents and they could include such things as your investment statements and recent tax returns.
Step Three ~ Analysis ~ The analysis is dependent on what you outlined in Step One as being your goals and objectives. Typically, I will start out with what is concerning the client as a first step, moving on the other issues that they may not have considered as a follow up.
Step Four ~ Recommendations ~ There might be a few of these as there normally isn’t one way to deal with any issue. Let’s look at retirement planning as an example. Maybe you want to stay in the city in retirement or maybe you want to move to a more rural community to take some of the equity out of your home to aid in the cash flow requirement.
Step Five ~ Implementation ~ This could involve just your Financial Planner and in-house expertise but other professionals may be needed. If you are working on a Will review, as an example, you will need an Estate Lawyer to help execute the written Will.
Step Six ~ Monitoring~ Periodic reviews are necessary to ensure your plan doesn’t derail. A retirement plan written today may not be accurate ten years from now. I tell my clients that financial planning is dynamic, not static, and their personal financial plan is as dynamic as their life! It’s important, however, to plan and move with the plan to ensure you end up where you intended to be.
Pulling together all your LIRA’s, LIF’s, Non-registered investments and DC or DB pension plans and seeing how they all fit together is part of the comprehensive analysis. In the end it provides security and peace of mind to know that not only you will be financially whole but also that you have strategized for those you leave behind, especially if you intend to leave a legacy.