Our Four-Step Financial Planning and Investment Process
Step 1: PLANNING – Comprehensive Financial Planning
A comprehensive financial plan is the forecasting of how your money flows and touches your life. It’s a point on the horizon and not necessarily carved in stone. See “start with the end-in-mind planning“.
We consider things such as how long you might live, who’s dependent on you, what type of lifestyle you want to live, do you have assets you want to pass on to others, and more. At the planning stage we start with a broad perspective and then get more focused as we move toward strategies and tactics needed to put the plan into motion.
We look into three broad areas— your family ecology, your professional life and your financial/investment ecology. We discuss these things in great detail during our initial three-step consultation for new clients.
The output of the financial planning step is a printed plan with all of the forecasts, assumptions and results. This plan, developed in specialized software, is easily updated in the future and allows us to play “what if” scenarios for choices you might face in life— a job change, or a new home, for example.
Step 2: STRATEGY – Develop a Strategic Plan
Strategies flow from the planning process. For example, what types of accounts might be needed? What types of investment and insurance products might be necessary? A strategy might be to re-finance the home mortgage to take advantage of lower rates. We might recommend estate planning and tax planning with a qualified estate attorney and tax accountant.
Pertaining to investments, a strategy might be a certain allocation of assets between equity and debt instruments. Within equities, a strategy might then be an allocation into subsectors of the economy, such as natural resources, consumer staples and so on. (Note that at this point we aren’t talking about the actual investment choices. That happens at the tactic level.)
Step 3: TACTICS – Create Specific Investment Tactics
At the tactic step we begin to get very specific. Consider tactics to be executable action items. An example of a tactic might be to say, “let’s buy investment X from the 401K account”. While we are responsible for all aspects of the plan, strategies and tactics, some tactics might be carried out by other professionals like your estate attorney, tax accountant, mortgage broker, etc.
Our role will be to carry out all the investment tactics and to play a supervisory role in any tactics carried out by your other professionals.
Step 4: MONITOR – Monitor Changing Conditions
Investment tactics are monitored on a daily basis and reported on a monthly basis. Accounts are re-balanced as needed.
All aspects of the plan, strategy and tactics are reviewed both formally and informally on a regular basis. Additionally, your life may change. You might get married, a couple may have a new child. A person could change professions. There could be a death in the family. Such an event might demand a change in one or more aspects of the plan, strategy and tactic process.
The monitoring and evaluating of changing conditions is a critical step in the planning process and feeds back into the first three steps. Without it, the original plan would become stale and ineffectual over time.
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Todd E. Frank, CPA/PFS, MBA is the President and CEO of Frank Financial Advisors, a Registered Investment Advisory Firm (RIA) serving clients nationwide from our headquarters in Carlsbad, San Diego, California. As an RIA, Frank Financial Advisors is able to offer truly independent, fee-only financial advisory services.
