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The 7-Step Financial Planning Process: How Advisors Can Adapt for Compliance

Celeste Revelli November 13, 2019

The CFP Board’s new Code of Ethics and Standards of Conduct went into effect on October 1, 2019. This comprehensive update to the Practice Standards, the most recent to address the delivery of financial planning services since 2007, focuses on ethical responsibilities in developing, presenting, and implementing recommendations.

CFP® professionals and advisory firms must understand when adherence to the seven steps is required, what’s new in the financial planning process, and how this provides an opportunity to best serve their clients.

When CFP® Professionals Must Comply with the New Seven Step Financial Planning Process

All the steps in Section C: Practice Standards for the Financial Planning Process got an overhaul to incorporate specific ethical standards into the client services workflow. Most significantly, these changes include the addition of a seventh step to the formerly six-step process. This change reflects the CFP Board’s vision for how advisors need to interact with clients in order to serve their best interests. It also reflects the reality that technology is used in all phases of the client relationship. Complying with the new seven step financial planning process is most easily done with robust planning technology.

Advisors must comply with these enhanced standards by June 30, 2020, when the CFP Board begins enforcement of the new rules. That requires a solid understanding of the changes in order to adapt as necessary to be in compliance with the new Code and Standards. In particular, advisors need to know about fundamental changes to the code that affect the entire firm.

The seven steps include:

  1. Understanding the Client’s Personal and Financial Circumstances
  2. Identifying and Selecting Goals
  3. Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
  4. Developing the Financial Planning Recommendation(s)
  5. Presenting the Financial Planning Recommendation(s)
  6. Implementing the Financial Planning Recommendation(s)
  7. Monitoring Progress and Updating

The CFP Board requires compliance with these standards under three distinct circumstances. The first is when you agree to provide, or provide financial planning, under a written client engagement agreement.

The second situation is when, to act in the Client’s best interests, you agree to provide, or do provide financial advice based on your client’s personal or financial circumstances. Even if you’re not providing formal financial planning, your financial advice might be necessary to honor your fiduciary responsibilities.

In the third case, you’re beholden to the new Codes and Standards when your client reasonably believes you will provide, or have provided financial planning. Anybody who markets themselves as a CFP® professional will be responsible for adhering to the new Code and Standards.

A More Holistic Approach to Financial Planning

One of the most significant changes in the CFP Board’s financial planning process outlines the way in which advisors must take a holistic approach to advice. There are changes to all steps in the new standards to incorporate consideration of all of a client’s financial goals, even if an advisor doesn’t handle every aspect of their financial lives.

The CFP Board revised the original first two steps in the planning process, “Establishing and Defining the Relationship with the Client,” and “Gathering Client Data,” and replaced them with steps focusing less on the data and more on the client’s overall financial goals. This encourages advisors to provide more valuable advice to clients through deeper conversations.

Whoever is responsible for onboarding clients and gathering data now has a responsibility to ask clients about their high-level financial goals, regardless of whether they’re directly managing the relevant assets. Clients must understand how plan recommendations can best serve them in achieving their overall goals.

The CFP Board emphasized this holistic approach because it wants advisors to focus on data gathering and goals conversations with precision, from the outset of financial planning. Their objective is to make certain advisors get a full view of the client’s goals so that clients aren’t receiving advice that isn’t in their best interest.

That means asking clients questions about all aspects of their finances to make sure their financial and life goals fit into a suggested strategy. For some advisors, this may require a shift in mindset when establishing relationships with clients. The conversation now must incorporate much broader topics than ever before.

Ethical Responsibility at All Client Touch Points

The other fundamental change to the new Code and Standards is the separation between building and presenting plans. Technically, CFP® professionals are the firm professionals who must comply with the CFP Board’s regulations. But the new Code and Standards hold the firm itself accountable for compliance. This means firms need to ensure everyone involved in a client’s financial planning workflow operates under the same guidelines as CFP® practitioners.

The CFP Board made this change because they recognize everyone in a firm may play a different role in the client engagement. One person might conduct financial plan development while someone else may be presenting the plan. Or the firm might separate the responsibility of gathering client data. If, for example, the person developing a financial plan is in compliance, but the person gathering client data doesn’t ask the right questions, the entire firm is not in compliance.

Steps 4, 5, and 6 of the new financial planning process outline precisely how advisors must develop, present, and implement financial plans, respectively. To follow these steps, firms need to place a higher emphasis on risk management, as well as explicitly documenting the planning process to clearly outline individual responsibilities.

The new financial planning process reflects the reality that in today’s advisory firms, the roles and responsibilities of planning are often segmented. That makes it imperative that everyone in the firm who is involved in client financial plan creation understand and comply with all seven steps of the new Code and Standards.

Establishing Deeper, More Valuable Client Relationships

For some time now, the industry has been turning to financial planning to gain wallet share, build relationships, and better serve clients.

The CFP Board’s new seven-step process for financial planning continues to push advisors and firms in this direction, putting in place even more guidelines for advice that is in the best interest of clients.

To comply with the new financial planning process, firms need to put their client’s overall goals above all else. Working with clients to achieve what they truly want in life will keep firms in alignment with the CFP Board’s mandates on how financial planning should be conducted. It will also help advisors develop stronger relationships and provide more value to clients—two things that can help firms achieve their own goals for growth.

Technology plays a big role in achieving compliance with the seven steps of financial planning. Learn more about eMoney financial planning solutions to see how you can more easily comply with the CFP Board’s seven-step financial planning process.

About the Author

Celeste Revelli, CFP®, is the Director of Financial Planning at eMoney Advisor. She oversees advanced financial planning client support and services, as well as eMoney’s internal and external financial planning education programs and department operations. With over 10 years of experience in the financial services industry, Celeste received her CFP® designation in 2014 and graduated from Loyola University Maryland in 2008.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.