Financial Planning
Financial planning is the process of developing strategies to assist consumers in
managing their financial affairs to meet life goals. The process of financial planning
involves reviewing all relevant aspects of an individuals situation across a large breadth
of financial planning activities, including inter-relationships among often conflicting
objectives.
The process of financial planning typically involves some or all of the following steps:
1. establishing and defining the relationship with the client, including an evaluation
of the financial planners ability to serve the client;
2. collecting qualitative and quantitative client information;
3. analyzing and assessing the clients information, objectives, needs and priorities;
4. identifying and evaluating strategies and developing recommendations and
presenting them to the client;
5. implementing the recommendations, which requires reaching agreement with
the client on responsibilities and having appropriate licenses to deliver financial
products and services; and
6. reviewing the clients situation on an ongoing basis to ensure the
recommendations continue to be appropriate in changing market environments
or client situations.
Step 1: Letter of Engagement is a professional requirement under Practice Guidelines
of FPSB India. It is necessary to define the Scope of Engagement before beginning
work on a clients Financial Plan. The same is to mutually define and determine the
activities that may be necessary in order to proceed with client engagement.
The scope and limitation of the services of a CFPCM practitioner need to be disclosed in
writing by him/her in the beginning itself. A CFP practitioner may not be proficient in
executing all aspects of Financial Planning, e.g. a complex succession planning may be
outsourced to a lawyer, and an evolved taxation issue may be got resolved through a tax
expert or Chartered Accountant, a large portfolio of assets to be actively managed may
be handed over to a portfolio manager. Such an arrangement should find an explicit
mention in the Financial Plan for the said activity, and should be a part of the scope of
engagement. Barring these specific incidents of other professionals facilitation a CFP
professional is trained to provide holistic services across all domains of personal finance.
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A marked difference from other professionals is that CFP practitioners abide by the
Financial Planner Code of Ethics and Professional Responsibility. They pursue continuous
professional development to remain conversant with current trends.
Few essential feature of the Letter of Engagement, are:
i) Specific services to be included or excluded, such as implementation of the
financial plan and its periodic review.
ii) Your compensation arrangements with respect to the engagement, including fees
to be paid by the client.
iii) Existing conflicts of interest, including those involving compensation
arrangements with third parties, and any future conflicts of interest if they occur.
As mentioned in (i) above, the Financial Plan can be holistic that is covering all domains
of finance (investment, financial management, insurance and risk management,
retirement, taxation and estate) and all activities like planning, execution and review.
However, the Financial Plan can be limited to few domains and services also. The
disclosure by client about other professional engagements may not be a necessary part
of the engagement letter.
The maximum liability of the practitioner against the claims and complaints of the client
is beyond the scope of the letter of engagement.
Step 2: After defining and discussing with the client the basic terms of the Financial Plan
construction, the next logical step is to collect quantitative and qualitative information
of the client.
The function of collecting qualitative information lays down the process of determining
a clients attitudes, expectations, financial experiences and the level of financial
sophistication. Some inferential data like the risk appetite of the client can be drawn
from this qualitative information.
Step 3: Assessing a clients objectives, needs and priorities comes under the following
core financial planning function comes under Analysis. Major activities under this step
are to consider potential opportunities and constraints to develop strategies and to
assess information to develop strategies. Evaluation and optimization of various
strategies to choose the most appropriate comes under Synthesis within this step. As
a part of this function, the Planner may identify other issues that may potentially impact
clients ability to achieve financial goals.
Step 4: Before developing recommendation, a Planner Identifies and evaluates all
alternative strategies which can reasonably address the clients objectives, needs and
priorities. While presenting financial planning strategy to client, a CFP professional is
most likely to explain assumptions/factors critical to the strategy and the related risks.
While presenting recommendations, the CFP Professional may intend to achieve the
following:
i)
Understanding by client of the current financial situation and the rationale for
recommendations
ii)
Reassessment of the recommended strategy if the same does not meet
clients expectations
iii)
Modification needed in the recommendations once clients personal,
economic and other conditions change
However, the CFP Professional should avoid stating and asserting that the
recommendations shall meet or achieve financial goals.
Step 5: Implementation or execution of the Financial Plan should be well covered at the
engagement level itself. However, few things can well change, e.g. the scope of the
engagement, as originally defined; the conflicts of interest, previously disclosed; the
sources of compensation and material relationships, previously disclosed, etc. However,
the responsibility itself of implementing the recommendations cannot change at this
stage. If engaged for only implementing recommendations, a CFP professional is not
required to identify activities for sourcing/coordinating with other professionals.
The Plan execution should be done in consultation and prior approval of the client. Any
changes in the existing strategy must be got approved by the client after discussing all
aspects and implication of altering the strategy.
Step 6: Review of Financial Plan is to seek affirmation that the initial recommendations
made were correct. The following is the rationale behind the Review of Financial Plan:
i)
Confirming that the financial planning recommendations as agreed upon have
been implemented
ii)
iii)
Assessing progress towards and achievement of the objectives of the financial
planning recommendations till date
Determining adjustments to the financial plan due to changes in the clients
personal, economic or other conditions, or objectives
Financial Planner Code of Ethics & Professional Responsibility
FPSB India adopted the Code of Ethics to establish the highest principles and standards.
These Principles are general statements expressing the ethical and professional ideals
CFPCM Certificants are expected to display in their professional activities. As such, the
Principles are aspirational in character and provide a source of guidance for Certificants.
The Principles form the basis of FPSB India's Model Rules of Conduct, Practice Guidelines
and Disciplinary Rules and these together reflect FPSB India's recognition of Certificants'
responsibilities to the public, clients, colleagues and employers.
For detailed understanding, the entire document available on FPSB Indias website may
be accessed. The following are some of the Code of Ethics explained for easy
understanding:
Client First: A Planner must act honestly and not place personal gain or advantage
before the clients interests.
This should not be confused with placing the clients interest over other consumers
interest so that the client gets best advantage in returns and services. In other
words, it is not about affording the client getting first preference in all matters over
other consumers.
A CFP professionals public responsibility is a bigger domain within which resides his
professional responsibility to serve the clients. It is as much a societal obligation as
well as a general duty of care, and should not ideally pose conflicts of interest
situations when applying Client First principle.
Integrity: The personal integrity of the Planner to build a level of trust in the client
relationship.
Though obvious things like overstating about the size, scope or areas of ones
competence, unauthorisedly representing the views of a person, group or
organization, unauthorisedly exercising discretionary authority over client assets are
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strictly advised against this principle, A Planner can very well engage in promotional
activities to emphasize the quality and standards of services.
Objectivity: It is to bring about impartiality, conflicts management, and professional
judgment in the process of delivering financial planning services to the client.
A Planner should disclose any material fact or information which is of self interest,
while recognizing personal or group conflicts while engaging the client. He/She
should prevent personal biases from influencing professional judgment.
The objectivity also should be exercised in course correction at the time of reviewing
a Financial Plan, e.g. a Planer while reviewing a Plan should recognize a new
recommendation fitting the current (changed) situation, even if it contradicts his
original recommendation while submitting/implementing the Plan.
Fairness: The Planner is required to provide all services to a client without prejudices
and with proper balance of interests.
The Planner must disclose the professional capacity in which he/she would be able
to provide services.
Professionalism: The Planner should behave with dignity and show courtesy to
clients, fellow professionals and business associates, thereby enhancing and
maintaining the professions public image and its ability to serve the public interest.
He/She should comply with appropriate rules, regulations and professional
requirements. It may be recognized that the compliance with rules and regulations is
as much a virtue of professional, diligent and competent discharge of ones
responsibilities.
Competence: By competence, we mean the Planner should attain and maintain an
adequate level of abilities, skills and knowledge in providing professional services.
He/She should also commit himself/herself to a continuing learning process and
professional development.
By Competence it is not meant that a Planner shall be an expert in all domains, or
he/she should compete in all components of financial planning with the best
professionals in order to provide the client professional services. Rather, he/she
should not hesitate in consulting appropriately with other professionals or referring
to them on realizing that he/she has limitations in performance of certain tasks.
Confidentiality: It simply means maintaining and protecting client information in a
way that prevents unauthorized access and inappropriate disclosure.
Diligence: It is all about fulfilling professional commitments in a timely and thorough
manner. Needless to say, it naturally deals with all timely professional discharge of
functions and responsibilities including compliance with applicable laws, rules, and
regulations of governmental agencies.
What are CFPCM marks?
CFP marks are owned outside the US by US based FPSB Ltd., and FPSB India is the marks
licensing authority for the CFP marks in India, through agreement with FPSB Ltd.
Financial Planning Standards Board Ltd. owns the CFP marks outside the U.S. and
permits qualified individuals to use these marks to indicate that they have met FPSB's
initial and ongoing certification requirements.
FPSB, US has affiliates across 26 countries globally (India is one of them). These affiliates
are licensed to administer the CFP Certification Program in their territories, e.g. the
CFPCM Certification issued by FPSB India is valid to be practiced in India.
Cross Border Use:
The cross border use of CFP marks requires a CFP professional certified in one country
to obtain certification in another country also where he or she intends to deliver,
directly support or supervise the financial planning process or holds himself or herself
out as a CFP professional.
This is required in view of separate laws relating to taxes, companies, securities
transactions and investment advisory prevailing in different countries. A CFP
professional certified in one country can therefore apply and get certified to use the CFP
Marks in another territory by obtaining CFP certification from the authorized body in
that territory. He/she can practice Financial Planning in either or both the countries.
Incidental Use:
There is incidental use of CFP marks by a professional certified in one country while he
or she is in another country to the extent of display on business cards, brochures and
articles published. The restricted use of CFP marks require a CFP professional to
communicate the fact that he or she has obtained CFP certification in one country is
certified to advise on financial planning matters in that country. Thus, the display of CFP
marks in a territory other than the one in which he or she was first certified while
delivering, directly supporting or supervising the financial planning process comes under
the incidental usage of CFP marks.
Usage of CFPCM marks:
1. Always use CFP in capital letters and without periods between letters, and with
the symbol CM in superscript, as in CFPCM Certification.
For instance, incorrect usages could be
CFPCM
CFP
C.F.P.
cfp
2. Always use CFPCM as an adjective instead of a noun, e.g. always use CFPCM
certification, CFPCM certificant, CFPCM credential, CFPCM designation, CFPCM
exam/examination, CFPCM professional, CFPCM practitioner or CFPCM mark.
Incorrect usages are CFP advisor, CFP course, CFP education, CFP program, CFP syllabus,
etc.
3. Always use CERTIFIED FINANCIAL PLANNERCM in capitals followed by Certification,
Certificant, Practitioner, Professional, Mark, etc. It should always be used as a
descriptive adjective.
Incorrect usages could be Certified Financial Planner, certified financial planner
4. Do not use plurals as in CERTIFIED FINANCIAL PLANNERs or CFPs.
The correct usages are
CERTIFIED FINANCIAL PLANNERCM Professionals; CFPCM Practitioners, etc.
5. The CFPCM or CERTIFIED FINANCIAL PLANNER CM Marks may not be used as part of
a domain name. They may appear as text or images throughout the website, in
accordance with FPSB Ltd.s or FPSB Indias rules for proper use.
For instance, incorrect use is www.rameshcfp.com
6. The CFPCM or CERTIFIED FINANCIAL PLANNERCM Marks may not be used as part of
an e-mail address by the CFPCM certificants.
For instance, incorrect usages are [email protected]
[email protected], [email protected], etc.
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