Unfortunately, just having a financial planner isn’t always enough. Even with the best advice, a lot of people struggle to break their bad money habits and build better ones that help them gain some much-needed financial independence….Continue reading…
By Angela Mae
Source: I’m A Financial Planner: Here’s Where My Broke Clients Always Go Wrong | GOBankingRates
.
Critics:
A financial planner or personal financial planner is a qualified financial advisor. Practicing in full service personal finance, they advise clients on investments, insurance, tax, retirement and estate planning.
As a general rule, a financial planner’s work can:
- integrate into the range of professional services (eg: lawyer, accountant); or
- integrate into the offer of a range of financial products and services (eg: financial advisor, insurance agent); or
- not be integrated into other products or services, providing stand alone financial planning.
Financial planning should cover all areas of the client’s financial needs and should result in the achievement of each of the client’s goals as required. The scope of planning would usually include the following:
- Risk management and insurance planning: managing cash flow risks through sound risk management and insurance techniques
- Investment and planning issues: planning, creating and managing capital accumulation to generate future capital and cash flows for reinvestment and spending, including managing for risk-adjusted returns and to deal with inflation
- Retirement planning: planning to ensure financial independence at retirement including 401Ks, IRAs etc.
- Tax planning: planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes
- Estate planning: planning for the creation, accumulation, conservation and distribution of assets
- Cash flow and liability management: maintaining and enhancing personal cash flows through debt and lifestyle management
The personal financial planning process is described in ISO 22222:2005 as consisting of six steps:
- Establishing and defining the client and personal financial planner relationship
- Gathering client data and determining goals and expectations
- Analysing and evaluating the client’s financial status
- Developing and presenting the financial plan
- Implementing the financial planning recommendations
- Monitoring the financial plan and the financial planning relationship
In many countries, there are no requirements (no legal framework) regarding the use of the title of ‘financial planner’. The scope of the title “financial planner” varies from one jurisdiction to another. The legal framework of the profession may include:
- a reserved title (eg: PFA-certified financial planner, CFP, financial planner): the protection of the title ensures that the services are provided by accredited persons meeting ethical standards;
- reserved activities: as a general rule, the asset planning activity is shared between several professions;
- compulsory basic and continuing training: the training requirements of financial planners ensure updating of skills;
- professional liability insurance;
- a compensation fund;
- a supervised service offer;
- supervised instrumentation;
- an obligation of written mandate before delivering a professional service.
In business, “financial forecast” or “financial plan” can also refer to an projection across a time horizon, typically an annual one, of income and expenses for a company, division, or department see Budget § Corporate budget. More specifically, a financial plan can also refer to the three primary financial statements (balance sheet, income statement, and cash flow statement) created within a business plan.
A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company. Note that the financial plan may then contain prospective financial statements, which are similar, but different, to those of a budget. Financial plans are the entire financial accounting overview of a company. Complete financial plans contain all periods and transaction types.
It’s a combination of the financial statements which independently only reflect a past, present, or future state of the company. Financial plans are the collection of the historical, present, and future financial statements; for example, a (historical & present) costly expense from an operational issue is normally presented prior to the issuance of the prospective financial statements which propose a solution to said operational issue.
The confusion surrounding the term “financial plans” might stem from the fact that there are many types of financial statement reports. Individually, financial statements show either the past, present, or future financial results. More specifically, financial statements also only reflect the specific categories which are relevant. For instance, investing activities are not adequately displayed in a balance sheet.
A financial plan is a combination of the individual financial statements and reflect all categories of transactions (operations & expenses & investing) over time. Some period-specific financial statement examples include pro forma statements (historical period) and prospective statements (current and future period). Compilations are a type of service which involves “presenting, in the form of financial statements, information that is the representation of management”.
There are two types of “prospective financial statements”: financial forecasts & financial projections and both relate to the current/future time period. Prospective financial statements are a time period-type of financial statement which may reflect the current/future financial status of a company using three main reports/financial statements: cash flow statement, income statement, and balance sheet.
“Prospective financial statements are of two types- forecasts and projections. Forecasts are based on management’s expected financial position, results of operations, and cash flows.” Pro Forma statements take previously recorded results, the historical financial data, and present a “what-if”: “what-if” a transaction had happened sooner.
Leave a Reply