Six-step financial planning process

Financial planning is not a single meeting. It is a sequence, and the order is the point.

The workbook lays out 6 steps. They run from the first conversation with a client to the reviews that carry on for years afterwards.

The first step is not about money at all. It is about agreeing what the adviser will do and on what terms.

Only then does the adviser ask what the client wants. Then what the client already has. Then what needs to change.

The last two steps are the ones that get skipped. One is actually doing the paperwork. The other is watching the plan afterwards and revising it.

A plan that stops at the recommendation is not a plan. It is a document.

Notice what the sequence is built around: the relationship between the adviser and the client. It is not a list of investment steps. That is what makes it different from the shorter sequence taught on the financial planning page, which belongs to a different NISM paper.

The 6 steps, in the workbook's own wording and order (section 1.5).

a. Establish and define the client-planner relationship. The planning process begins when the client engages an Investment Adviser and describes the scope of work to be done and the terms on which it would be done.

b. Gather client data, including goals. The future needs of a client require clear definition in terms of how much money will be needed and when. The workbook is explicit that this is the process of defining a financial goal.

c. Analyse and evaluate financial status. The current financial position needs to be understood to assess income, expenses, assets and liabilities. The ability to save for a goal, and to choose appropriate investment vehicles, depends on the current financial status.

d. Develop and present financial planning recommendations. The adviser assesses what is already there and what is needed in future, and recommends a plan of action. The workbook lists what that plan may include: augmenting income, controlling expenses, reallocating assets, managing liabilities and following a saving and investment plan for the future.

e. Implement the financial planning recommendations. Executing the plan and completing the necessary procedure and paperwork for the decisions taken with the client.

f. Monitor the financial planning recommendations. A client's financial situation can change over time, and the performance of the chosen investments may require review. The adviser monitors the plan to ensure it remains aligned to the goals, is working as planned, and makes revisions as required.

Why the process is defined this way. The workbook's framing sentence says financial planning requires advisers to follow a process that enables acquiring client data and working with the client to arrive at appropriate financial decisions and plans, within the context of the defined relationship between the planner and the client. That clause is why step (a) exists: everything after it is bounded by what was agreed at the start.

The workbook attaches no figure to the process — no fee, no minimum review frequency, no timeline per step. The count of 6, and the order, are what it gives.

Mr and Mrs Fernandes, both 35, approach a fee-only adviser. Walk the 6 steps.

a. Relationship. The engagement letter sets the scope: a full plan covering retirement, one child's education and insurance, for a one-time fee of Rs 35,000, with an annual review at Rs 12,000. No product will be sold; implementation goes through direct schemes.

b. Data and goals. Two goals, stated as an amount and a date:

c. Analyse. Combined take-home Rs 2,10,000 a month. Expenses Rs 1,45,000. Surplus Rs 65,000. Existing assets: PPF Rs 8,00,000, EPF Rs 14,00,000, equity funds Rs 6,00,000. One liability: a car loan with an EMI of Rs 19,000 and 22 months left. Life cover between them: Rs 25,00,000.

d. Recommend. Assume 11% a year on equity and 8% on the existing EPF and PPF. The education goal needs about Rs 13,000 a month for 13 years. The retirement goal needs about Rs 15,800 a month, because the existing Rs 22,00,000 of EPF and PPF grows to roughly Rs 1,50,00,000 on its own over 25 years and only the balance has to be funded. That is Rs 28,800 of the Rs 65,000 surplus. The remaining recommendations are the ones that are not investments at all: raise term cover from Rs 25,00,000 to Rs 2,50,00,000, at an assumed premium of Rs 32,000 a year, and do not prepay the car loan, because it clears in under two years anyway.

e. Implement. Two SIP mandates registered, a term policy bought, nominations recorded, and the KYC and bank mandate paperwork completed.

f. Monitor. Year one review: equity returned 17%, ahead of the 11% assumption, so both goals are modestly ahead of plan. But the car loan has now cleared, releasing Rs 19,000 a month, and a second child is expected. Neither of those is an investment problem.

So the review does not adjust the SIPs. It sends the adviser back to step b to restate the goals, and then to step c with a new expense base. That is the loop the sixth step exists to trigger.

Chapter 1 (Introduction to Personal Financial Planning), section 1.5 (Financial Planning process), immediately before financial advisory and execution at 1.6. This is close to guaranteed material because it is short, numbered and easy to test. Expect a question naming one step and asking what comes next, one asking which step is first, and one asking at which step a named activity belongs — paperwork is implementation (e), not recommendation (d).

• 6 steps, and the first one is the relationship. Not data gathering, and certainly not the investment recommendation. Scope and terms are agreed before anything else.
• Gathering data and analysing status are two different steps. (b) collects the goals and the amounts; (c) works out the income, expenses, assets and liabilities that will fund them.
• Implementation is its own step. The procedure and paperwork sit at (e). A plan presented and never executed has stopped at (d).
• Monitoring is a step, not an afterthought. The workbook requires the adviser to check the plan stays aligned to the goals and to make revisions.
• This is the client-relationship process, not an investment process. Asset allocation and portfolio construction are Chapter 15's portfolio management process, a separate sequence.
• The published financial planning page sets out a shorter sequence taught in a different NISM paper. For Series X-A, answer with these 6 steps in this order.
• A recommendation may not be an investment at all. The workbook's own list includes augmenting income, controlling expenses and managing liabilities.