The Financial Planning Process

The purpose of a financial plan is to chart a course of action that will take you from your current financial situation to your future financial goals.  A good financial plan may involve: 

  • Saving for retirement and children's education, etc.
  • Providing the desired retirement income
  • Minimizing income taxes
  • Determining the appropriate investments to match your goals
  • Determining the appropriate risk on investments
  • Protection against death, illness or loss of income
  • Transferring wealth in the most efficient and effective manner
  • Asset protection

When selecting an advisor it is important that he or she have a broad knowledge of all areas of financial planning.  Many advisors are one-dimensional and often lack expertise in many of the important areas mentioned above.   Unfortunately, many advisors today only give generic advice.  Although they gather financial information on individuals, they fall short in creating a fully customized plan.   At Calton & Associates, we use advanced software and a detailed five-step approach that is easy to understand and implement.  Using our five-step process, we will design a complete financial and investment plan to meet your individual needs all illustrated in a Personalized Comprehensive Report that you will review with your financial advisor.


Step 1: Fact Finding


The success of any financial plan depends heavily on the accuracy of information gathered at the fact-finding stage.  In order to properly set any plan in motion we must first obtain the information that is pertinent to your current and future financial needs.  Initially this begins with an interview that should result in your advisor gaining a clear understanding of your goals and expectations.  At this point, we must also obtain a complete picture of your current financial status, liquidity needs, risk tolerance and investment experience.  When projecting future financial needs the accuracy of this information is of the utmost importance.  The more precise the information we receive the greater the accuracy of our planning.  For this reason, much of the time during our initial consultation is used getting to know you and listening to what you have to say about your individual financial needs.  


Step 2: Needs Analysis


You should not consider any investment or financial recommendation without first completing this necessary step of financial planning.  The information gathered during the "fact finding" exercise will play an essential part in determining your needs.  At this stage of financial planning, we will uncover any areas of concern.  We will also determine the return your investments must earn to meet your future needs.  This is the most important step of the process because it determines what level of risk you may or may not need to take with your investments to reach your goals.  It also uncovers areas of your plan on which we should focus.  It is important to note that we must determine your needs before we can determine how you should invest. 


Step 3: Solution Development


Using the insight from our Needs Analysis we then determine the possible solutions appropriate for your individual needs and suggest an asset allocation breakdown for your investment and retirement assets.  Asset allocation is simply the amount or percentage of your assets invested into the different asset classes such as stocks, bonds, real estate, cash, etc.  This is an important step in diversification.  Asset allocation and diversification are some of the most important factors that determine the success of your investment plan over time. 


Proper asset allocation can also help you manage the overall risk of your investments so it is important to know just how much risk is appropriate for your individual needs.  We base your Asset Allocation recommendation on the Needs Analysis section of your report.  For example, in general if you need an average yearly return of 7% per year on your investments to reach your goals you do not have to take as much risk as an individual that needs 10%.  Typically, we recommend that a person who needs 7% not have as much money invested in stocks compared to a person that needs 10%.  We base the recommended asset allocation on your individual retirement income needs. 


Step 4: Recommendation and Implementation


Once the asset allocation breakdown is determined, the proper investments are selected to best model this allocation.   For instance, if we recommend investing 50% of your assets into stocks, this stage of the planning process determines which investments satisfy that part of the investment portfolio. The investments chosen should have the needed flexibility for future allocation adjustments.  This will be an important feature in the future if we need to adjust or rebalance your assets to reflect a changing investment environment.  We must also consider liquidity needs, tax reduction, asset protection, protection against financial crisis and wealth transfer strategies in our recommendations.  Upon your review and acceptance of the plan, we will purchase the recommended investments.


Step 5: Monitoring the Plan


Once implemented, we will continually monitor your plan and conduct periodic reviews to measure performance against our initial expectations.   When appropriate, we will make recommendations to adjust your investments based on current market situations.  We base your financial plan on a number of assumptions that can change over time such as interest rates, expected returns and inflation rates.  Major life changes such as retirement, birth of children, loss of job, divorce, or serious illness can also have a large impact on your financial situation. Therefore, it is vital that you have frequent and open communication with your Financial Advisor to monitor and adjust your financial plan as time passes.