Financial Planning: Needs and Issues of the Client - Essay Example

? Financial planning Contents Contents 2 Financial planning: Needs and Issues of the client 3 Home and health planning 3 Educational Planning 3 Investment planning 4 Risk Management 4 Financial planner’s assistance to the client 4 Assistance: Home and Health needs 4 Assistance: Educational needs 5 Assistance: Investment needs 5 Assistance: Risk mitigation 5 Analysis of the Fact Finder document 6 Strength and weakness 7 References 9 Financial planning: Needs and Issues of the client The various needs and issues of the client that have been identified in the various areas of financial planning are given as flows. The risk profile of Vincent has been identified to be moderately aggressive while the risk profile of Linda as cautious towards financial planning has been taken into consideration. Home and health planning Vincent and Linda have the topmost priority to shift to their own home from their rented house. The purchase of own residence would require one time down payment for the property. The salaries and the income of the household are mostly spent in the expenses for livelihood and therefore the source of funds is an issue for the couple to purchase the property. The couple is also worried about Vincent’s health as he is prone to heart attack as a hereditary symptom for which the family needs idle funds during emergency. The third on the priority list is to plan for a holiday tour in Europe which is desired by the client. Educational Planning Vincent and Linda are concerned about the high school education of their child Julie who is about 3 years old at present. The couple want to save for their child’s education in about 9 years time for which they wanted to start saving. The issues related to the education planning of their child is that Vincent may lose his job of an accountant due to strategic take-over of his employer by another bigger player in the industry. Also Vincent and Linda are not expecting any further increase in their salaries in the recent years. Thus the financial constraints in financing their child’s education could be serious issue for Vincent and Linda. Investment planning The investment planning of Linda is the next issue that is being faced. While Linda and Vincent are concerned about streamlining her investments, they also have the obligation to meet their monthly instalments payments of various liabilities. This requires sorting out of Linda’s superannuation funds which is currently distributed into three different schemes into one scheme so that the payments and receipts could be properly tracked. Risk Management Vincent and Linda should take into account the risk of repayment of new credit card debt that they have acquired recently. This requires a payment of $5000 on a monthly basis while the actual surplus of the family is $3000 after meeting all expenditures. Thus the client faces the issue of defaulting on the payment of credit card debt. Financial planner’s assistance to the client The various ways in which the client could be assisted through financial planning in order to address the identified needs are given as follows. Assistance: Home and Health needs In order to address the first three needs against which specific issues have been identified as above, the client should be advised to undertake loans from the banks as well as undertake investment strategies to increase their wealth in order to meet the needs within a period of five years. In order to buy the home, the client could be advised to undertake a loan from the bank for purchase of property. By showing their employment proofs, the client would be able to get the loans. The savings of rental payments which were happening before could be used to accumulate funds for meeting medical emergencies like heart attacks. The accumulated savings could also be used to finance holiday plans as per the priority of the client (Cordell, 1999, p.57). Assistance: Educational needs The educational need of their child is ranked fourth in the priority list of Vincent and Linda’s planning. In order to provide a high quality of education to their child, Vincent and Linda should take up insurance plans for child’s education and health. A part of the annual returns obtained from the investments of Vincent and Linda could be used for paying insurance premiums distributed in smaller amounts over a period of next five to ten years would help them to secure high quality education for Julie. The details of the proposed investment and the expected returns are represented in the below section. Assistance: Investment needs The investment needs of Linda could be addressed by advising the client based on her risk profile. Linda is cautious over the risks involved in her investments. Thus the second option in the advanced superannuation Scheme would be preferable to Linda. The total fund of $43000 in the superannuation scheme would be invested in this scheme which invests in a combination of defensive investments (70%) and low aggressive investments (30%). This would provide Linda a growth of 40% over the next three years, i.e. by an amount of $17200. Assistance: Risk mitigation Since the client has purchase its own property, they would be able to save their rental payments done earlier. This rental payment would get accumulated for the purpose of emergency and holiday plans in the next five years (McKeown, 2012, p.48). A part of this amount could be added to the monthly surplus of the family, i.e. $3000 in order to repay the new credit card debt. Analysis of the Fact Finder document The analysis of the Fact Finder Document in providing important information about the client which enables efficient financial planning and designing solutions in order to meet the needs of the client has been explained as follows. It has been analyzed whether the data collected for the client is relevant for identifying the financial issues of the client and then advising the client on their specific needs. The collection of data by the help of Fact Finder is a tedious job and should be dealt with due importance by the client as well as the planner. The Fact Finder should be so designed that the collected data satisfies the basic rule of “Know your client”. The efficiency of the Fact Finder as a financial planning tool depends on the extent of risk profiling of the customers which enable to identify appropriate strategies that could be advised by the financial planners in order to meet their needs. The Fact Finder document used in this case has been analyzed on the basis of the above mentioned characteristic features. The Fact Finder starts with the process of data collection on the personal details including information on citizenship and latest contact in order to comply with the laws of anti-money laundering in the area of financial planning. The details of the family and its descendants have been collected in order to get a comprehensive idea on the nature of expenditures of the client. The Fact Finder provides information on the various financial expenditures of the client in the short term as well as long term as also ordered in terms of priority. A comparison of the income of the client and the current as well as forecasted expenditures given in this fact finder helps he financial planner to understand the degree of importance that should be allocated to resolving the financial issues of the client depending on the priorities of the client (Rattiner, 2010, p.38). For example, the priorities of the client as stated in this Fact finder helps the planner to identify the home and health needs as the topmost priority of client followed by needs of education, investments and risk management. This Fact Finder helps the financial planner to understand the various financial issues associated with the needs of the client in terms of the gap between the expenditures and the income level. For example, the new credit card debt of $5000 could be a financial issue for the client as the available surplus on monthly basis is only $3000 in order to repay the debt. In order to advise suitable strategies of financial planning in order to meet the expenses through the prevailing income and asset base, the risk profiling of the client as obtained from the Fact Finder is extremely useful. The Fact Finder helps the financial planner to understand the risk taking capability of the client. For example, Vincent has been identified to have high risk taking capability as compared to that of Linda who is cautious about her investment. The risk profile of the client has been determined by designing specific questions on the objective of the investments of the client, impressions of the client on the market volatility, reaction of the client in case of loss of investment value and losses, ideas about the investment market and preferred investment strategies, past investment and leverage history of the client, etc. The risk profiling has been done in this Fact Finder with the help of a weighted score based on which the financial planner would be able to advise financial planning strategies for the client in order to manage the future expenditures at an primal level of risk for the client. Strength and weakness The strength of the fact Finder lies in the detailed risk profiling of the client. The accurate risk profiling of the client would help the financial planner to address the financial issues of the client in an effective fashion to meet the current and future expenditures. The Fact Finder provides comprehensive information on the client and its dependents, the risk tolerance level of the client, etc. This information is useful for effective financial planning (Toten, 2006, p.49). The weakness of the Fact Finder lies in the fact that there may be undeclared sources of income or assets that have been not been stated by the client and has not been captured by the Fact Finder. The intentions of the client that may lie behind concealing exact information may be due to tax concerns, illegal source of income, etc. In such cases, the Fact Finder may not produce accurate information for financial planning. References Cordell, D. M. 1999. Fundamentals of Financial Planning. USA: Amer College. McKeown, W. 2012. Financial Planning. Australia: John Wiley and Sons Australia. Rattiner, J. H. 2010. Getting Started as a Financial Planner. USA: John Wiley and Sons. Toten, M. 2006. Financial Planning. Australia: Career FAQs. Read More