There has been a great deal of media discussion here in Australia concerning the difficulties in obtaining a good financial plan from a financial planner. However, finding a simple definition of just exactly what a good financial plan looks like is difficult.
A financial plan can be described as a road map that has been drafted to help you arrive at a pre-determined financial destination, in the best possible shape. However, as soon you set out on your financial journey, things will change. Responsibilities for children and mortgages will sway; you’ll fall into the occasional financial pot hole (sickness, loss of job etc). Tax and investment legislation will change and the investment markets will fluctuate with the economy.
Your financial plan will need to be tweaked, updated and even replaced completely with a new financial plan several times during your lifetime. And each time your receive a financial plan, you’ll want to know, ‘Is this financial plan right for me?’
Our checklist is designed to help you assess the basics of what a good financial plan should include:
1. Has the financial planner listened?
You want a personalised financial plan, not something that is re-hashed and sold to everyone that walks through the door.
Look to make sure that the financial planner has identified and clearly articulated your core financial goals. For example, they should include the short term goals that might include a new car and a holiday. Your medium term goals that could include a new house and your long term goals for retirement.
Check to make sure the financial plan has captured your true financial situation. Al investments, liabilities, income and expenses need to be accurate.
2. The scope of the advice
If you asked for a full financial plan, your financial planner should identify areas beyond your investments. They should take into consideration your estate planning, insurance, your health, business assets and any specific concerns you may have for the future.
All good financial plans will provide you a statement detailing the ‘scope’ of the advice. This statement should clearly articulate what aspects of your financial situation that the financial planner is advising on and what elements they are not. For example, the financial planner may highlight in the scope statement that they are only advising on your investment portfolio.
3. Why and How
Throughout the financial plan, the financial planner should clearly articulate why each recommendation was considered and how the recommendations will help you to achieve your financial goals.
4. Investment Risk
You will need to fully understand and be comfortable (sleep at night) with the risks that are associated with your financial plan. The financial plan should explain why, the level of risk has been recommended and how this investment risk will help you to achieve your goals. This is vital as when things go wrong, people often say that they were not aware of the risks associated with their investment. Don’t let this happen to you.
5. Product Risk
Are you aware of the products and the companies associated with the recommended investments and insurance? You want to be confident that the product providers will stand the test of time. If you are not sure, do your own research. Again, you’ll need to know why each product was recommended and how it will help you to achieve your goals.
6. Is the financial plan realistic?
We have all heard the saying ‘If it sounds too good to be true, it normally is’. A good financial plan is unfortunately quite boring. A plan with extravagant claims to easy wealth accumulation is something you should avoid.
7. Fees and level of service
The fee section should be very transparent. You should be able to identify the fees for:
- Developing the financial plan
- Implementing the recommendations
- The fees associated with on-going services (product and advice fees).
The on-going service fees are the most important as over a long period of time, these fees will chip away at you investment returns. You need to fully understand what level of service you’ll receive in return for paying the fees.
At the start of this article we highlighted that arrangements for advice should go on for a lifetime. You need to know how the financial planner’s business will manage your financial well-being for now and in the future. You don’t want nasty ‘fee’ surprises when your situation changes.
8. Who can you complain to if you are not satisfied?
If it all goes wrong, you will need to know how to lodge a complaint and to whom. All good financial plans should provide you with information and contact details of where you can lodge a complaint if you are not satisfied with the outcomes from the financial plan. This will include company details of where to lodge a complaint, along with contact details for government regulatory bodies that regulate financial planners.
A good financial plan can be a great asset for securing your financial future. You need to play your part in the process for developing and monitoring the financial plan by being open and honest with your financial planner.
If you are not sure of anything, always ask ‘why and how’ questions. Don’t be afraid to complain and always keep yourself updated.
We have summarised the key points into a one page ‘Financial Plan Checklist’ to make is easier to assess your financial plans.
Recommended Reading – Financial Planner Checklist – 8 Questions You Must Ask. A guide to find a financial planner for you and it also includes a one page checklist.