Chapter 9 Developing a Product: Writing a Financial Plan The Process of Financial Planning: Developing a Financial Plan Lytton, Grable & Klock 2006.

Chapter 9 Developing a Product:

Writing a Financial Plan

The Process of Financial Planning:

Developing a Financial Plan Lytton, Grable & Klock

2006

Writing Style & Voice

Writing style: Consistently used, distinctive, personal approach to communicating in writing

Should reflect awareness of the primary information processing styles:• Visual

• Auditory

• Kinesthetic

Information Processing Style Guidelines

Visual (eyes)• Pictures, graphs, charts, and other

visual aids

Auditory (ears)• Discuss, talk, review

Kinesthetic, experiential (actions)• Engage the content through web-

based calculators, software simulations, “to do” list

Writing Style & Voice

Voice conveys an image of the writer and the message through• Author’s point of view

• Author’s choice and use of pronouns

• Author’s choice of active or passive verb tense

What Voice to Use?

A knowledgeable expert with technical expertise; An objective professional serving as a fiduciary; A trusted confidante and friend; A counselor, coach, referee, challenger, or

educator; A business person or service provider with good

customer relationship skills; A trusted family friend; or A motivator and “voice of reason” for financial

issues.

Exploring Voice

1. Point of view• Impersonal – factual message

• Personal – personalized message

2. “Person”• First person: I, me, my, we

• Second person: you, your

• Third person: she, he, her, him, his, they, them, their

• “One” – impersonal and gender neutral

Objective, Subjective & Possessive Case Usage

Case Singular Usage Plural Usage Subject or Subjective

First Person Second Person Third Person

I You She or He

We You They

Object or Objective First Person Second Person Third Person

Me You Her or Him

Us You Them

Possessive First Person Second Person Third Person

My Your Her or His

Our Your Their

Exploring Voice (cont’d)

3. Verb form• Active verb tense: Shorter, direct more

forceful and personal sentences.• “Yogini purchased a $1M term policy.”

• Passive verb tense: More impersonal, detached sentences.• “A $1M term policy was purchased by Yogini.”

As a Trusted Coach & Educator

To be more objective:• Plural possessive and use of “one”

• More passive sentences To be more informal, but personal:

• Pronouns and client’s first name

• More active sentences Use a consistent voice, but don’t jolt the

client between educator and coach

Plan Style & Format

Remember,

anything that can assist a client in accessing and interpreting a plan will enhance the

probability that a client will buy into the ideas presented and, most importantly, ultimately

implement the recommendations.

Rules for the Plan

Functional format with easy to read fonts, that are repeated throughout the plan

Consistency in the formatting, writing style, and voice from one plan section to another

Format to maximize the mix and impact between color and black and white

Use a plan cover that sends the right message Check and recheck for errors, omissions, and

grammar

Rules for the Plan (cont’d)

Each core content section within a comprehensive plan should be comprehensive

Write well, but clearly – and provide resources Make sure the plan follows the process Use a combination of pre-scripted and client

specific information – set in the current context Document, document, document!

A Well-Written Financial Plan Is:

Integrative

Realistic

Synergistic

A Well-Written Financial Plan Is:

Integrative: The sections link together, as do the recommendations

Realistic: Goals, analysis, and recommendations match the client –including assumptions and marketplace. Can be implemented with or without the advisor.

Synergistic: Comprehensive financial life roadmap – the “whole is worth more than the sum of the parts”

Components of a Plan

Plans vary with the business model of the advisor and the services, products delivered

Sequencing may vary, but all good plans include these “bones”

I. The Cover Page

Should include:• The firm’s name and address

• The planner’s name

• A brief firm or planner vision statement

• A phrase such as “A Comprehensive Financial Plan Prepared for [Client’s Name]”

• The term “confidential” clearly indicated

• Any applicable disclosure statements as required

• The date of the plan

II. Letter to the Client

Informational message that varies with the business model of the advisor, the services/products delivered, and the client relationship. Letter may include some or all of the following:• A personal, friendly overview

• An outline for the future relationship

• Statement of compliance and legal disclosures

Signed and dated by the advisor

Personal, Friendly Overview

Reintroduce the planner/firm to the client Restatement of commitment to goal

accomplishment Review of the planning process Review of the planner/firm’s core values Statement of commitment to an on-going client

relationship

Outline For The Future Relationship

Timing of periodic reviews; Expected client preparation for review meetings

(e.g., updating client information by mail or online); Provision of quarterly reports or other client

updates; Availability of the planner or other staff for client

assistance; Mailing of newsletters; or Access to the firm’s other services

Statement Of Compliance & Legal Disclosures*

Confidentiality of client data – privacy statement Confidentiality of planning relationship Investment performance disclaimers Disclaimers for confirming advice, working with

other professionals

*May be on a separate disclaimers page in the Introductory Materials Section

III. Copy of the Original Client Engagement Letter Contractual letter signed by the client outlining

responsibilities of the advisor and client

If signed earlier, then a copy rather than another original may be included in the plan

May appear at the end of the plan as confirmation for the advisor to proceed with implementation

Messages in the Engagement Letter

Explain the scope of the engagement and expectations for client and advisor:

• Plan only, and perhaps an overview of components or scope of review

• If implementation, then how, by whom, and when

• Retainer or concierge services

Messages in the Engagement Letter (cont’d)

Disclaimers• Investment disclaimers

• Tax and other legal services disclaimers

Plan, analysis limited to client provided information

IV. Table of Contents

A navigational tool that explains:• Plan organization and contents

• Availability of supporting documents (analytical or educational)

• Page numbers

Color coding (page numbers, tabs, etc.) if used, should improve, not hinder the navigation

V. Other Introductory Materials

Designed to foster client confidence, planner credibility and client commitment. May have been in other marketing materials, so may be omitted or summarized in the plan.• Mission/vision statement

• Statement of principles or core values

• Ethics statement

• Privacy statement

• Investment policy statement

Mission/Vision Statement

Mission: Focuses on market segment and the strengths, weaknesses of the firm to serve that target market

Vision: More global statement of the firm’s aspirations and the principles and values that govern the firm’s operation

Mission/Vision Should “Speak”to the Firm’s Potential Clients

We strive to bring our clients financial peace of mind. Our goal is to identify optimal recommendations to help guide our clients in reaching their financial goals and objectives. We do this by building trusting, long-lasting client relationships that always focus on the best interests of our client—not our own. It is our goal to give the best guidance and advice to help our clients consistently make sound financial decisions in pursuit of their hopes and dreams.

Statement Of Principles Or Core Values

What does this planner/firm stand for?• Customer service

• Teamwork

• Professional expertise

We expect a high level of customer service and satisfaction from our staff.

We believe that planning through teamwork provides better service.

Ethics Statement

CFP Board of Standards, Inc. Code of Ethics• Integrity

• Competence

• Objectivity

• Fairness

• Confidentiality

• Diligence

• Professionalism

Professional association code

Privacy Statement

Likely provided with initial client information, may be included in the plan

May be required by law – at initiation of the business relationship and with annual updates

States policies on how data will be used, shared with other professionals with disclosure and consent, and confidentiality maintained

Investment Policy Statement

Signed by planner and client to establish guidelines for the appropriate and mutually agreed upon management of the client’s funds

Provides a transparent set of investment policy parameters that provide discipline for the planner and the client

VI. Client Profile, Summary of Goals, Assumptions

Establishes the foundation, or grounding, for the plan development

Sets the parameters, or constraints, on the planning process

• Resources

• Goals

• Assumptions

One last opportunity for client validation

Client Profile

Full demographic profile, and final check for accuracy• Names, address

• Employment

• Ages, health status

• Other pertinent information

Summary of Goals

Clearly defined and perhaps ranked, mutually agreed upon goals• Specific

• Measurable

• Attainable

• Realistic

• Trackable Guide the plan and the implementation

Assumptions

Summary of all assumptions, although they may be repeated in respective sections.

•Factual information about the household or other planning issues

•Assumed information about the household or other planning issues

VII. Executive Summary or Observations & Recommendations

Purpose of the Plan• Key goals and objectives

Methods Used to Analyze the Situation• Assumptions used

Results of the Analysis Recommendation(s)

• Projected financial outcomes Implementation Strategies for Action Timeline for Implementation

How Much of the Story to Tell?

May be general or detailed – which impacts the remainder of the plan

May be organized by goals or core content planning areas

Keep a balance between the summary and the core content planning sections

“Title” of the summary and the approach should reflect the voice of the firm and the clients served

VIII. Individual Core Content Planning Sections

Each core content planning section should be consistently similar –establishes a “routine” for the client and the firm

Assume the client has limited knowledge, unless confirmed otherwise

Educate and motivate – don’t overwhelm! Use text and graphics + appendices

VIII. Core Content Planning Sections (cont’d)

Cash Flow Analysis

Net Worth Analysis

Tax Analysis

VIII. Core Content Planning Sections (cont’d)

Insurance/Risk Management Analysis• Life insurance

• Health and disability insurance

• Long term care insurance

• Property and liability insurance

• Umbrella insurance

• Other insurance needs

VIII. Core Content Planning Sections (cont’d)

Investment Analysis

Retirement Analysis

Estate Planning Analysis

VIII. Core Content Planning Sections (cont’d)

Specialized Analyses• Educational funding

• Planning for special needs

• Charitable giving

• Trust management

• Long-term care planning

• Family business continuation

• Refinancing scenarios

• Saving for special objectives

Core Content Planning Section: An Outline

I. Overview of core content area and definitions

II. Restatement of planner-client assumptions

III. Review of the analysis of client’s current

situation• Observations about the current situation

• Assessment of the planning needs

• Assessment of the current planning efforts

Core Content Planning Section: An Outline (cont’d)

IV. State financial planning recommendations that are actionable and answer:• Who?• What?• When?• Where?• Why?• How? • How much?

Example Recommendation

In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.

Example Recommendation

In order to reach your goal of accumulating an emergency fund equal to 4 months of current living expenses in your XYZ money market account, you need to automatically transfer, via bank draft, $150 from your checking account for the next 15 months. Cecillia, please initiate the request by calling XYZ, Inc. within the next 30 days.

Core Content Planning Section: An Outline (cont’d)

V. Compare projected recommendation outcome(s) to current situation• Document the method used

• Apply mutually agreed upon assumptions

• Conduct a fair comparison – legitimate and conservative

VI. Suggest alternative recommendations and outcome(s) where appropriate• Use the options to inform and expand the options,

but don’t overwhelm

Graphic Comparison of Projected Outcomes

College Funding Projections

($40)($20)

$0$20

$40$60$80

$100

10.5 12.5 14.5 16.5 18.5 20 22

Th

ou

san

ds

Child's Age

College Tuition Expense

Proposed Account Balance Projection

Original Account Balance Projection

Core Content Planning Section: An Outline (cont’d)

VII. Provide implementation and monitoring plan• Explain the source of the cash flow or assets to be

used to fund the recommendation

• Give specific implementation advice and establish responsibility

• Tables, “to do” lists, or a timeline can be helpful to inform and motivate the client

IX. Implementation & Monitoring

Summarizes, integrates and prioritizes all of the strategies and actions required to implement the plan

May include narrative, tables, charts, graphs, or “to do” lists

Goals of this section: • To rank and fund the recommendations

• To ensure that action occurs

Example Implementation TableWhat Who When How Strategy Effect on

Annual

DCF

Contribute the $4,000 annual maximum to a Roth IRA.

Doug and Nancy

Before the end of 2006

Contact your broker to open the Roth IRA accounts, or our firm will be glad to assist with opening these accounts. Funding will come from both your excess discretionary cash flow and money in your money market account.

Saving for retirement by using a tax-advantaged investment account that offers the added benefit of tax- and penalty-free withdrawals under certain circumstances.

Post-tax-$8,000

Net Effect of Retirement Planning Recommendations -$9,200

Discretionary Cash Flow (DCF) After Implementing Recommendations $7,345

Implementation & Monitoring Sets the Stage For….

Implement the plan in a timely manner Guide future monitoring meetings Guide future progress assessments Guide future needed changes in response to

changes in the client’s situation, goals, or the economic/legal marketplace

X. Client Acceptance Letter or Client Engagement Letter

Depending on the business model, the client engagement letter may• Formalize the business agreement

• May be included as a record of the earlier transaction

• May be used alone or in conjunction with a client acceptance letter

• May appear only at the beginning of the plan

The Client Acceptance Letter

Informational or contractual message that varies with the business model of the advisor, the services/products delivered, and the client relationship

Sometimes called “acknowledgement of delivery”

Signed and dated by the client Reiterates that the plan reflects the

information provided by the client

XI. Appendices

Supplements to educate the client

• Supporting calculations, spreadsheets, analysis

• Informs the client of the mathematical framework

• Increases transparency of the analysis

• Protects against claims of unsuitability, errors, or omissions if the analysis matches the assumptions

• Educational articles

• Glossary of key terms (optional)

• Document – with page references, footnotes, etc.

To Write Good Plans…

Practice the craft of planning and writing – get client feedback.

Check and recheck….• Use Figure 9.5

Financial Plan Review Checklist

Summary

Good plans • capture the interest, trust, respect, and

commitment of the client.

• integrate the client with a realistic plan for financial well-being.

• provide a synergistic financial road map to the future.

• standardize the internal processes for working with clients.