Financial planning practice

The final step in the ISO 22222 financial planning process is monitoring the financial plan. Any economic, legislative or taxation changes, as well as changes to the client’s personal or financial situation and/or objectives may impact on the original advice and require th...

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...assistant) may send a review form to the client for them to complete, asking them to confirm any changes in their circumstances and/ or objectives. Alternatively, they may phone the client to gather the relevant information or simply update the information at the meeting itself.

Client situation

Any changes in a client’s personal or financial situation could lead to a change to their original objective(s) and/ or their attitude to risk or may give rise to a new objective altogether, all of which may require the original financial plan to be revised. Such changes could include:

Income and Expenditure: An updated income and expenditure analysis should be carried out. A change in income or expenditure could result in having more or less surplus income each month to put towards meeting the client’s objectives, for example, where regular pension or investment contributions are being made or premiums are being paid to protection policies. This will, of course, have a knock on effect to the projected likelihood of achieving the goal in question, and, where a drop in available income is involved, the objective may have to be revised or expectations lowered. It may also be desirable to find cuts in expenditure.

A rise in available income, on the other hand, could provide the opportunity to meet other objectives that were perhaps outside the client’s budget previously, as well as increasing the likelihood of achieving the original goals. It may also lead to upward revisions in expectations, for example, an increased target income in retirement.

Planners should also ensure that the best use of available funds continues to be made and that there are no difficulties in meeting expenditure as a result of any part of the financial plan. If the client has increased their debt, for example, it may be more beneficial to redirect some funds to debt repayment, if o...

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...metimes, the planner will need to be proactive in arranging ad hoc reviews in response to major changes to legislation or economic conditions. This will require them to have a good back office system to allow them to identify groups of clients likely to be affected, for example, “holders of a pension plan”. Even where no action is required, many clients are likely to value the fact that their situation has been reviewed in response to updates in legislation.

A good system should be able to carry out advanced searches. As an example, should the pensions Annual Allowance drop from £40,000 to £30,000, then a search for clients contributing over £30,000 would be extremely useful. Such functionality within the back office system is also useful for other exercises, for example, being able to identify all holders of an investment fund that is to be switched.

Risk Profile

The client's attitude to risk and capacity for loss should also be regularly reviewed. Changes in circumstances, such as approaching retirement, a change in employment or health concerns may affect the level of risk the client is willing to take. Where the level of income and/ or assets has changed, their ability to absorb losses may also change accordingly, which, in turn, will have an impact on the financial plan and may require a change in investment strategy on one or more of the underlying financial products.

Even where circumstances remain unchanged, it would be good practice to repeat the whole risk profiling process (including the risk questionnaire) regularly, for example every 2-3 years.

Where the plan involves a financial product that has been taken out to try to meet a specific objective, the product needs to be reviewed to ensure that it continues to be suitable and is on track to meet the objective. Action may be required where shortfalls or projected shortfalls start to appear or indeed potential overprovision.

Example: Balanced Risk Investment Portfolio

Daniel’s risk profile ...

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... designed to match the original mortgage of  £145,000 and is now insufficient to meet their objective of providing funds to clear the mortgage should either of them pass away or suffer a serious illness. The term of the policy is now also too short. Their financial planner agrees to investigate whether the existing policy can be amended or whether a new policy altogether will be required.   

The financial planner will also look at the client’s available tax allowances and exemptions as part of the review to try to ensure that they are utilised as far as possible.

ISA Allowance : Where this can’t be funded from income or capital, the allowance could be ...

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...ent has made any gains elsewhere.

Inheritance Tax Exemptions: Those clients for whom IHT is a concern should be encouraged to make the most of the allowable exemptions, where possible, such as the annual exemption of £3,000, small gifts exemption and gifts from income.

The results of the regular review are likely to be summarised in a formal document detailing the client’s objectives and any changes to them (as a result to changes in th...

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...ted, it could quickly become unsuitable to meet the client’s objectives as their situation, needs and objectives evolve over time and conditions around them change. 

This revision test (opens in a new window) ...

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...test will be added to your CPD certificate.