2. What is Professional Financial Planning?
Simply Put:
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The process of allowing a person with financial needs to
develop and implement a plan to meet those needs.
3. The Financial Planning Process
Gather relevant data and information
Analyze current position and identify all financial
problems
Define and develop financial goals
Develop a strategy to meet those goals
Implement the plans
Regularly review and Update the Plans
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4. The Need for Financial Planning
Example: The Roth IRA
What is an IRA?
Why should I save for
retirement? I do have Social
Security!
How much do I need to
have for retirement?
Why would I want to save
on a taxed advantaged basis?
How does my employer’s
retirement plan fit in?
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I have an IRA. Should I
convert to a Roth IRA?
What should I invest in?
How does risk come into
play?
Have I already met life
insurance, health insurance,
and disability income needs?
Will a Roth work Better?
5. Financial Planners
How Compensated
Fee-only- charges an hourly
or flat fee
Fee-based – fee based on
percentage of assets
Fee-offset – set fee but
offsets fee on sales
commission
Commission based planners
– income generated by sales
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Professional Designations
CFP, Certified Financial
Planner – Awarded by CFP
Board of Standards
ChFC, Chartered Financial
Consultant – The American
College of Financial Planning
PFS, Personal Financial
Specialist – American
Institute of Certified Public
Accountants
6. Economic Security
Tripod of Economic
Security
Social Security
Employer Based Benefits
Individual Investment and
Insurance
Threats to Economic
Security
What are the trends wrt the
above?
What do you have control
over?
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Premature death of a wage
earner and/or supporting
spouse
Divorce
Illness or Accident – medical
expenses or lost income
Inadequate income during
retirement
Loss of Job
7. Income and Consumption Patterns
Milton Friedman
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Permanent Income
Hypothesis
Notion of current
spending decisions a
function of their total
lifetime income in mind.
Franco Modigliani
Life Cycle Hypothesis
Rate of consumption in a
period is part of a lifelong plan. Income in one
period is just one input
to shaping that plan.
8. A Financial Life Cycle
What is happening during these periods?
Income
Consumption
Early Yrs.
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Middle Yrs.
Post Retirement
9. Why Should a Person Use a
Financial Planner?
Identifying the need and the solution
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Peace of mind
Develop a strategy to achieve financial goals
Manage risk from unfavorable human life contingencies
Increasing wealth
Provide efficiency in transferring assets to the next generation
10. What is Required
Proper record keeping
Proper construction of financial statements
Developing reasonable financial goals
Account identification, source of income, how titled,
when cash flow is generated
Proper valuation of assets
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11. Thank You
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