Definition and Requirements of a Financial Plan

A Financial Plan is a document authored, co-authored or validated¹, by a financial planning professional, such as a CFP^® professional or QAFP^® professional, that addresses a client’s current situation and strategies for achieving their financial planning goals, values, needs, and priorities.

A Financial Plan evaluates at least three (3) relevant financial planning areas but may evaluate up to all six (6) financial planning areas (see Glossary) and addresses the interrelationships among them taking into consideration the trade-offs.

The Financial Plan must include:

1. Financial Management analysis. Discovery and analysis of a client’s current and future financial position is fundamental to a financial planner’s ability to provide financial planning advice with respect to the other planning areas. This analysis may be captured as its own area or integrated into other areas within the plan; and
2. At least two of the following additional financial planning areas: Investment Planning; Insurance and Risk Management; Tax Planning; Retirement Planning; and/or Estate Planning and Law for Financial Planning.

A Financial Plan will include an assessment of the client’s current financial situation, relevant personal and financial assumptions, analysis relating to the financial planning areas being assessed, evaluation of financial strategies and recommendations to assist in achieving the client’s goals, values, needs and priorities. A Financial Plan documents the personal information and financial assumptions on which it is based along with the steps required to implement the plan, setting out what needs to be done, by whom, and when.

A Financial Plan should also highlight the importance of regular reviews to ensure that the plan reflects, or is amended to reflect, material changes in the client’s life or the planning environment.

A Financial Plan must be provided to or accessible by the client. A financial plan should be prepared using clear, concise, client-friendly, and accurate language that supports the client in understanding the benefits as well as the risks and costs of the recommendations² in helping them meet their goals, needs and priorities.

A financial planner may use technology, including financial planning software, when developing a Financial Plan. The financial planner is responsible for ensuring that the assumptions and inputs in the Financial Plan, are reasonable and appropriate for the client and must understand the technology they use well enough to validate that its outputs are reasonable and appropriate before relying on the technology for the financial planning process.

¹Where a financial planning professional is part of an advisory team, the financial planner is expected to validate plans created by their teams. Validation requires confirmation that the recommendations included in the Financial Plan are appropriate for the client given the documented assumptions, goals, needs and priorities.

²Financial planning involves making specific recommendations based on the quantitative and qualitative information collected about the client’s current situation, financial goals, values, needs and priorities, and an appropriate analysis. Financial planning involves the application of professional judgment; accordingly, the recommendations of one financial planner may differ from those of another financial planner. In every instance, the recommendations should be based on sound professional judgment and defensible based on the information gathered from the client, the analysis of that information and a reasonable evaluation of the potential strategies the client can leverage to optimize their financial situation.

Glossary

Financial Planning

Financial planning is a disciplined, multi-step process of assessing an individual’s current financial and personal circumstances against their future goals and developing strategies that help meet those goals by optimizing the allocation of financial resources. Financial planning takes into account the interrelationships among relevant financial planning areas in formulating appropriate strategies. Financial planning areas include financial management, investment planning, insurance and risk management, retirement planning, tax planning, and estate planning and law for financial planning.

Financial Management

Financial management focuses on clients’ current and future financial positions, including the use of cash flow and the development of cash flow statements; the establishment and use of savings; and the use of credit and repayment of debt. A client’s financial position is characterized by current and projected cash flow and net worth, and reflects the client’s inclination to spend, save and borrow.

Investment Planning

Investment planning focuses on clients’ assets and how to best manage them according to clients’ investment risk tolerance and objectives. Planning involves all of a client’s investment holdings, which can include cash, fixed income, equity, real estate and commodity-based assets. Investment planning decisions will impact a client’s ability to meet financial goals related to major purchases, as well as education funding, retirement, tax and estate planning.

Insurance and Risk Management

Insurance and risk management focuses on strategies designed to manage clients’ exposure to an unexpected financial loss due to death, disability, health issues, property damage and other risks. CFP professionals and QAFP professionals compare a client’s risk exposure to their current insurance coverage and other available assets to help determine and prioritize their risk management needs.

Tax Planning

Tax planning focuses on clients’ current and future income tax obligations, and the use of available strategies to minimize or defer taxation. Tax planning strategies are designed to help strengthen a client’s financial position, giving them a better opportunity to meet their financial goals.

Retirement Planning

Retirement planning focuses on clients’ financial well-being after their regular employment has stopped. It involves a comparison of a client’s expected lifestyle in retirement to their projected retirement income stream and assets.

Estate Planning and Law for Financial Planning

Estate planning focuses on the distribution of assets on death. Administering an estate involves the payment of funeral expenses, debts, taxes and other financial obligations of the deceased, and the distribution of assets to beneficiaries. Law for financial planning focuses on the legal aspects that impact clients’ financial planning and includes the obligations or entitlements detailed in domestic, separation or divorce agreements; trust deeds; shareholder or partnership agreements; and the provisions outlined in powers of attorney or mandates and health care directives.