Part 2: Personal Financial Planning, History, Process and Options

The ladder of success

Financial Planning Defined: The devising of a program for the allocation and management of finances and capital through budgeting, investment, etc. In other words, it is the process of meeting your life goals through the proper management of your finances.

Financial Planning Trends:  Financial planning has been an emerging profession for about the last 30 years. Prior to that, financial planning  only served the ultra wealthy since they were the only ones with money to invest who could also afford a team of legal, tax and investment advisers. Since WWII, the demographics of our country have changed. People are living longer and they have extra income for things other than necessities. In previous generations, people lived hand to mouth either in cities or on the farm, earned and saved little, and died at younger ages than today. Today’s poor in America have statistically much more than previous generations had. In addition, the complexities of financial matters and the lack of financial education have created the need for financial planning assistance for every income level.

Financial planning as an industry really came into being, at least in the eyes of the consumer, in the 1980’s and 90’s. Financial planning rode the wave of the biggest and longest bull stock market of all time. A contributing factor to the explosive growth of this industry hinged on the fact that baby boomers reached their peak earning years. Personal computers had a huge impact; until the late 1980’s they didn’t exist. Planners were much better able to run countless complex reports to generate financial plans.

One reason that the financial planning industry will continue to change is that the largest transfer of wealth ever seen is due to occur over the next 30 years. It is estimated to be in the tens of trillions of dollars.

Today many high-net-worth individuals are using Fee-only and Fee-based financial planners. Unfortunately, the wealthy are the only ones who can afford their fees. However, to bring financial planning to the masses, eFinPLAN was introduced in 2007.

An Outline of Comprehensive Financial Planning.The areas covered in financial plans for the wealthy have not changed much: Table 1 is an outline that most financial planners follow. Table 2 represents additional areas covered by only a few planning systems, so be sure not to miss them too.


1.   Present Financial Condition

  •  Net Worth
  •  Data Confirmation
  •  Cash Flow
  •  Debt
  •  Taxes

2.   Future Goals

  •  Retirement
  •  College Education
  •  Other Goals
  •  Wills
  •  End-of-life Issues
  •  Trusts

3.   Investment Planning

  •  Risk Assessment
  •  Asset Allocation Worksheet
  •  Implementation
  •  Monitoring
  •  Organization

4.   Risk Management/Insurance

  •  Cash Reserves
  •  Property & Casualty
  •  Life & Disability
  •  Long-Term Care
  •  Assumptions
  •  Educational Material

5.   Spending

6.   Legacy Planning


               TABLE 2

Additional Financial Planning Areas

1.   Cash Flow being affected by:

  •  Transportation
  •  Debt
  •  Personal relationship issues
  •  Values

2.   Using trusted professional advisers to:

  •  Implement your plan
  •  Help determine if advanced services of other advisers or a fee financial planner are needed
  •  A thorough Implementation Action checklist

The Options for Receiving Financial Planning Services

Until now, only individuals who could pay a large fee or who had a large sum of money to invest were able to receive a financial plan; others were offered a ‘free financial plan’ and then were sold a product. Frankly, this was the only way financial planners could recoup the value of their time until now. With eFinPLAN, financial planning is available to people at all income levels without a large fee or a promise to invest. For the first time, everyone can have access to innovative comprehensive software.

Up to now, there were four different ways people received financial planning assistance, but now there is an additional online way:

Five Types of Financial Planning Services

  1. Fee-only Financial Planners provide comprehensive financial planning assistance, covering virtually all areas of financial planning. They receive no commissions for products sold, as their only source of revenue is a charge for the financial plan and a charge based on assets. Financial Plan Fee: Ranges from $2,500 to $5,000 or higher for the financial plan—one time or yearly. Asset Charge: .50% to 2.00% on assets (total or assets under management). Some charge by the hour instead of an upfront planning and ongoing investment fee, although this is rarer.
  2. Fee-based Financial Planners provide comprehensive financial planning assistance similar to what fee-only financial planners do. The may receive a fee similar to Fee-only Financial Planners, but they may also receive compensation from insurance and investment products that they provide.
  3. Investment Advisers’ main emphasis is investment management. Some investment advisers may provide full or modular financial planning services. They usually charge a fee on assets under management. They may or may not charge for the financial plan.
  4. Product Providers utilize financial planning software to help analyze the need for the insurance or investment products they wish to sell. They receive commissions for insurance, annuity and investment products sold. Sometimes they do the financial plan for free, or they may charge for it, but they may wave the fee if you buy a product from them.
  5. eFinPLAN is a web-based system designed for consumer use. It provides educational, narrative, and numerical information to help people take control of their financial future. Consumers use their team of trusted professional advisers to implement the financial plan. The cost is less than $100 per year.

The Process of Financial Planning usually has two phases. The first phase is to design a financial plan, or a road map of written plans. This usually involves the following 4 steps.                                                      

Phase 1: Financial Plan Design

  1. Gathering data, including goals.
  2. Analyzing and evaluating financial status.
  3. Developing financial planning alternatives.
  4. Implementing the initial action plan.

After the plan has been established, the second phase includes:

Phase 2: Implement and monitor

  1. Learning about financial matters.
  2. Implementing additional action steps.
  3. Monitoring the progress toward your goals.

This is the 2nd article in a 5-part series about financial planning: