The Ins and Outs of Financial Planning

What is Financial Planning?

Increasing the likelihood of you and your family achieving your financial goals is a financial plan’s purpose. Practically, financial planning involves back and forth communication with your financial planner or financial advisor to construct a plan.

A well-constructed plan enables you to maximize what you get out of life. It is not simply about cutting spending to invest for retirement. For example, you could be living more conservatively than you need to or investing too conservatively. Thereby, shortchanging what you are able to do in your life.

Your financial advisor should help you find the proper balance. A good plan will help you prioritize your goals and illuminate a path to achieving them.

A Solid Financial Plan Structure

The Certified Financial Planning Board of Standards outlines a 7-step financial planning process. This thorough process provides financial advisors and planners with a checklist that helps set a high professional standards bar. You can learn more about the CFP here.

We’ve outlined elements of this checklist below. But don’t worry. The goal is not for you to become an expert in the below so you can create your own financial plan. It’s provided as a reference guide to see if the financial plan you’re getting is as thorough as it should be.

Assess and Understand Your Circumstances – Step One

During this step, a financial advisor should obtain the information from you that is necessary to complete the plan. They should also identify any data gaps in what you’ve provided that may limit their ability to complete your plan.

The data examples below highlight typical data your financial advisor should gather.

Goals, Needs, and Priorities

Goals, needs, and priorities are obtained in rough form at this stage in the plan. They are the core of what you’re trying to accomplish when creating your financial plan and influence every aspect of the plan.


It might seem strange to be talking about your health with your financial advisor, but it is important information. For example, medical needs can be costly and ignoring the potential for these costs down the road can render a plan incomplete.


Your values can influence multiple aspects of your financial plan. This information plays a role during advisor and client discussions pertaining to goal prioritization. It also informs asset allocation decisions, such as potentially excluding investments that don’t align with your values.

Risk Tolerance

Risk tolerance is the amount of financial loss you believe you could psychologically withstand when investing. Exceeding what you’re comfortable with when investing can cause you to make poor decisions during market stress periods.

It’s important to think carefully about this. Sticking to your investment plan during market sell-offs is a key factor in determining whether or not you achieve your financial goals.

On a related note, consider your perception of a potential advisor’s credibility and their ability to influence your actions during times of market stress.

If you don’t believe they will be able to talk you out of making emotionally-charged decisions, such as fleeing the market during a sell-off, then they’re probably not the right advisor for you. Acting as a ballast during tough times is one of the primary value-adds a financial advisor should provide.

Risk Capacity

Risk capacity differs slightly from tolerance because it is more objective. It refers to the amount of investing risk that your financial situation and time horizon enable you to withstand.

Current Course of Action

You could have spent time creating a plan with a former advisor, created a loose plan yourself, or have not created a plan at all. Your financial advisor should evaluate any current plan you have in place and understand how and why it was formulated, and where it might be falling short.


Your expectations when engaging an advisor are likely multi-faceted. You have expectations of what your financial advisor can or will provide for you in exchange for their fee and expectations of what you need them to provide.

Reconciling your expectations with what’s achievable lays the foundation for a successful advisory relationship.

Income, Expenses, Savings, Assets, and Liabilities

Each one of these is a vital input in formulating your financial plan.

For example, the current snapshot of your assets and liabilities indicates where you stand in the context of your short- and long-term financial needs and goals.

Similarly, your financial advisor needs to assess whether your current spending (expenses) exceeds the money you’re bringing in (income). They may recommend reducing expenses to grow your asset base relative to your liabilities. You may also have to consider altering your longer-term financial goals if you don’t want to forgo certain expenditures that you enjoy currently.

Expense control is one of the most important factors in achieving financial success. The world offers us countless things to spend money on. If you make $50,000 per year or $500,000 per year, you can still outspend your income and set yourself up for failure.


You might have children, parents, siblings, or others in your life that rely on you for financial support. Determining what needs of theirs you will be financially responsible for, and when, needs to be factored in to your plan.

Identify Your Goals – Step Two

During this planning step, your financial advisor should help you formalize the rough goals provided in the previous step.

Formalization involves prioritizing certain goals, while understanding that trade-offs may need to be made. You might want to buy a vacation home and pay for college for your grandchildren. But your circumstances might not support both of these aims.

Your financial advisor should also discuss with you key assumptions that will be made during plan development. Expected investment returns and life expectancy are two examples of assumptions made.

Don’t hesitate to question how your advisor arrives at their assumptions. For example, expected investment return assumptions are both important to the plan and challenging to predict. Inquire about how they arrive at their assumptions. Even seemingly small differences in return assumptions—such as 7% returns versus 4% returns—can add up to big differences in ending wealth over long time horizons.

Analyze Your Current Course of Action and Potential Courses of Action – Step Three

You might already have a plan in place that is setting you up for success. Your advisor should help identify if that’s the case.

Even if your plan checks all the boxes, it can still help to evaluate alternatives. No plan is perfect and looking at things from a different perspective might cause you to reconsider elements of your current plan.

Develop a Plan for You – Step Four

This is the stage where your financial advisor establishes a recommended course of action based on the information gathered and discussed in the previous steps.

Your financial advisor should outline the best route to take to reach the financial destinations you want to reach. They should also recommend the most appropriate modes of transportation. As an analogy, an airplane could be the fastest vehicle, but if you’re afraid of flying, a train or car might be more appropriate for you.

Choosing the right investment allocation follows a similar line of thinking. One investment allocation might produce superior long-term returns, but you may have to withstand on-paper portfolio losses along the way that are beyond what you can tolerate.

Present the Plan to You – Step Five

After your financial advisor has developed their plan recommendation, it’s time for them to share it with you.

They should clearly outline how their recommendation sets you on a path to achieve the highest probability of success. Crucially, this needs to be done in a manner that ensures your understanding of the plan and the rationale behind each assumption within it.

Your advisor should also articulate the impact the plan will have on your day-to-day life. For example, potential lifestyle adjustments should be made clear.

Planning is a process that is most successful when there is adequate dialogue. Express your concerns about any aspects of the plan if you have them. If you are unsure about it in theory, then putting it in action is likely to be challenging.

Implementing the Plan – Step Six

The financial professional you’re working with may or may not be the one implementing the plan for you. This should be discussed at the outset of your engagement.

If the person creating the plan for you is also implementing it for you, then this is the stage where the financial advisor will evaluate services and products necessary to implement the plan and discuss each with you. Services can include accounting for tax needs, while products can include investments and/or insurance products.

The financial advisor might require a third party to implement certain aspects of the plan, such as an accountant or insurance provider. They should outline if this is needed and if there are any conflicts of interest connected with this, such as third-party referral incentives.

Your financial advisor should also outline any compensation they or their firm receives for recommending investment products.

Monitor Your Progress and Update as Needed – Step Seven

Similar to the last step, this step is not necessarily part of every advisor/client engagement.

If your advisor does have monitoring responsibilities, they should discuss your progress towards your financial goals with you at regular intervals, at least annually.

The advisor should also ascertain if your circumstances have changed, as the plan might require updates to reflect the changes.

Costs of a Financial Plan

You might think that ascertaining costs for a financial plan is straightforward. Unfortunately, it is less clear than you might initially expect.

Financial advisors or financial planners charge for financial planning in a variety of ways. Some advisor pricing models for planning include charging by the hour, charging a fee based on a percentage of the assets of yours that they manage, charging a single or standalone fee for a plan, or a blend of these options.

Fortunately, (a highly regarded educational resource for financial advisors), published a financial advisor survey to shed light on this topic. The key takeaway from this study is that the typical standalone fee advisors charge is between $2400-$2450. The typical hourly rate runs between $220-$238, with the total plan cost for those charging an hourly rate runs between $1650-$2053.

The study produced several other interesting findings that are beyond the scope of this article. But, if you’re interested in diving deeper, you can access the full article here.

Financial Planning Designations

There are enough financial professional designations to make even an industry professional’s head spin. We’ve highlighted two of the most common that are geared toward the act of financial planning itself.

The Certified Financial Planner certification is one of the most relevant finance industry credentials that an advisor can hold when it comes to planning. To earn and maintain the CFP designation, an advisor must complete initial coursework, pass an exam, meet relevant industry experience requirements, and fulfill continuing education requirements.

A Chartered Financial Consultant (ChFC) must meet similar requirements as a CFP in order to qualify to use the designation. Though, as of this writing, there are some additional courses required when pursuing the ChFC including behavioral finance, small business planning, and divorcee-related planning.

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