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

Connor Sung August 8, 2023

financial planning process for advisors
Updated on: December 13, 2023

The CFP Board’s Code of Ethics and Standards of Conduct focuses on the ethical responsibilities of CFP® professionals as they follow a seven-step financial planning process to work with clients. But what exactly is that process and how can financial professionals ensure they are complying with the expectations set forth by the CFP Board?

What Is the Financial Planning Process?

The CFP Board defines financial planning as a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances. Key to this definition is the word ‘process’. It’s important to note that while it may result in a product or document called a financial plan, it is the collaborative act of creating a plan that defines the process.

Through the financial planning process, a long-term strategy to reach financial goals is established that includes defining the client steps necessary to achieve those goals. Financial plans are highly personal to each client’s needs, obstacles, and goals, and should include steps for implementation, monitoring progress, and making updates as needed. The financial planning process should be a part of your firm’s established workflows and overall business plan for financial planning.

What Are the Steps in The Financial Planning Process?

As part of the recent changes, the CFP Board’s previous six-step financial planning process was reworded and increased to seven steps. They are:

  1. Understanding the Client’s Personal and Financial Circumstances—The process begins by establishing a quantitative and qualitative picture of who the client is and what they want to achieve financially.
  2. Identifying and Selecting Goals—Using the information identified in step one, the financial planner helps the client identify and select goals.
  3. Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action—This step establishes whether the client is moving toward their financial goals and if not, identifies alternative recommendations to do so.
  4. Developing the Financial Planning Recommendation(s)—At this point, the financial planner evaluates and selects the recommendations they believe will help meet the client’s goals.
  5. Presenting the Financial Planning Recommendation(s)—Here the financial planner shares the recommendations and the thought process behind them to help the client make an informed decision about whether the recommendations are a good fit.
  6. Implementing the Financial Planning Recommendation(s)—Often the most difficult step, this requires the client to have the desire and discipline to put the plan into action with the support of their financial planner.
  7. Monitoring Progress and Updating—Because financial planning is a process and not a single end-point, the plan is continuously monitored and adjusted as the client’s life evolves.

Beyond the changes to these steps, the update reflects an overhaul of the Practice Standards for the financial planning process to incorporate specific ethical standards into the client services workflow.

Complying with the CFP Board’s Seven-step Financial Planning Process

The financial planning process reflects the CFP Board’s vision for how advisors need to interact with clients to serve their best interests. This includes the requirement that the whole firm—not just CFP® Professionals—comply with these standards under three distinct circumstances:

  1. When you agree to provide, or provide financial planning, under a written client engagement agreement.
  2. 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.
  3. 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.

Compliance Extends to Everyone Involved in the Planning Process

The CFP Board’s revisions created some fundamental changes to the Code and Standards by recognizing that multiple people within a firm may play different roles in the client engagement. One person might conduct financial plan development while someone else may present the plan. Or the firm may have yet another team member take responsibility for gathering client data. If the person developing a financial plan complies, but any other contributing team member does not, the entire firm is out of compliance.

Firms also have a responsibility to communicate effectively and transparently to clients and among all employees. This is an area where the use of technology enables secure client collaboration across team members for transparency and plan change tracking.

The financial planning process reflects the reality that in today’s advisory firms, the roles and responsibilities of planning are often segmented. Technically, CFP® professionals are the ones who must comply with the CFP Board’s regulations. But the updated 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 Incorporation of Holistic Financial Planning

One of the most significant changes in the CFP Board’s financial planning process outlines the way in which financial planners must take a more holistic approach to advice, even if they don’t handle all aspects of a client’s financial life. Client onboarding and data gathering now must include asking clients about their high-level financial goals, regardless of whether they’re directly managing the relevant assets.

Through deeper conversations at the beginning, as well as throughout the process, financial professionals will learn more about their client, including aspirations, hopes for their family, or hopes for retirement, and help them understand that having life goals requires a means to achieving them.

This holistic approach ensures that financial professionals focus on precise data gathering and goals conversations from the start of the financial planning process. By making certain financial professionals get a full view of the client’s goals, there’s less likelihood that clients aren’t receiving advice that isn’t in their best interest.

Approaching the process holistically can also aid in eliciting client action because they know the advice and recommendations are made to help them achieve their aspirations, hopes, and goals and are not just focused on monetary gains.

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

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 seven-step process for financial planning continues to push practices in this direction, putting in place guidelines for advice that is in the best interest of clients.

The result is a financial planning process that is holistic in nature and more attuned to the personal needs of each individual client. To learn more about ways to personalize the financial planning process to your clients’ needs, read our eBook Personalizing the 7-step Financial Planning Process, Real-world Tactics for Better Client Relationships.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

The views and opinions expressed by this blog post guest are solely those of the guest and do not necessarily reflect the opinions of eMoney Advisor, LLC. eMoney Advisor is not responsible for the content, views or opinions presented by our guest, nor may eMoney Advisor be held liable for any actions taken by you based on the content, views or opinions of the guest.

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About the Author

As Director of eMoney’s Financial Planning Group, Connor helps clients build more successful practices and deepen client relationships. He leads an exceptional team of financial professionals who help clients transform their technology platform and financial planning processes to increase efficiency, drive growth, and create planning-led user experiences. He oversees eMoney's financial wellness strategy, as well as internal and external financial education programs, aimed at providing financial peace of mind for all. Joining eMoney in 2013, Connor has over 10 years of technology, practice management, and planning experience. He earned a Bachelor's degree from James Madison University, and earned his CFP® designation in 2016. Connor loves spending time with his family and friends in Philadelphia, and enjoys staying active by golfing, snowboarding, playing hockey, and playing with his goldendoodle, Nala.

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