The Financial Planning Process: Definition of a Financial Plan

The purpose of this notice is to provide CFP^® certificants and QAFP^® certificants (collectively “Certificants”), as well as clients and the Canadian public, comprehensive guidance pertaining to:

• The criteria that must be met for a document to be recognized as a "Financial Plan"; and
• A broad overview of the Financial Planning process which may result in the production of a Financial Plan.

Accompanying the definition of a Financial Plan which serves as a framework for Certificants, is a client-facing definition which outlines what clients may anticipate when working with a professional financial planner and when receiving a Financial Plan.

Financial planning is a disciplined, multi-step process of assessing an individual’s current financial and personal circumstances against their future goals, resulting in the development of strategies and recommendations to achieve those goals while optimizing the allocation of financial resources. The financial planning process can be divided into six distinct financial planning areas, which are:

1. Financial Management (analysing income, expenses, assets, and debts),  
2. Investment Planning (growing and managing savings),  
3. Insurance and Risk Management (protecting against financial loss from life events such as accidents, illness, or death),  
4. Retirement Planning (planning for after regular employment has stopped),  
5. Tax Planning (assessing current and future tax obligations); and  
6. Estate Planning and Law for Financial Planning (arranging how assets are structured and passed on and assessing legal protections such as a will, trust, power of attorney or equivalent).  

The process of financial planning can be ongoing, involving regular monitoring of an individual’s progress toward meeting their personal goals, values, needs, and priorities, a re-evaluation of financial strategies in place, and recommended revisions where necessary.

A Financial Plan is a written document that addresses an individual’s personal goals, values, needs, and priorities. It takes into account relevant financial planning areas, including financial management, and the interrelationships among them. A Financial Plan includes the client specific information and financial assumptions on which it is based. The client-specific data, assumptions, and projections used by the Certificant when creating the Financial Plan should be clearly documented. In addition, the assumptions should be discussed with clients to ensure they understand and are comfortable with how they are used in the development of the Plan. A Financial Plan may provide a list of action steps, including what needs to be done, by whom, and when.

Definition and Requirements of a Financial Plan with Glossary

Refer to Definition and Requirements of a Financial Plan.

Client Facing Explanation

Refer to Client Facing Explanation of a Financial Plan.

A Financial Plan can be customized based on the scope of the engagement (as set out in the Terms of Engagement).

As a general guide, a Financial Plan may include the following sections:

1. Draft and Validate

• Ensure recommendations are appropriate for the client’s documented goals, values, needs, and priorities.
• When part of an advisory team, validate plans created by others to confirm recommendations are prudent and appropriate for the client.

2. Identify and Evaluate Financial Planning Strategies

• Evaluate at least three financial planning areas, including Financial Management, and at least two others (Investment Planning, Insurance and Risk Management, Retirement Planning, Tax Planning, Estate Planning and Law for Financial Planning).

3. Use Clear, Client-Friendly Language

• Prepare Financial Plans using clear, concise, and accurate language.
• Ensure clients understand both the benefits and risks/costs of recommendations.

4. Document Assumptions and Implementation Steps

• Clearly record personal and financial assumptions.
• Outline steps for implementation: what needs to be done, by whom, and when.

5. Apply Professional Judgment

• Make recommendations based on sound professional judgment and defensible analysis.
• Recognize that recommendations may differ between planners but must always be client-centric and defensible.

6. Use Technology Appropriately

• Use financial planning software and technology appropriately.
• When using planning software and technology in the development of a Financial Plan, take reasonable proactive steps to gain a general understanding of the underlying methodologies that may have a direct impact on financial planning projections and recommendations.
• Validate that the inputs and assumptions used are reasonable and appropriate based on the client’s circumstance.
• Validate that the outputs generated are reasonable and appropriate for the client before relying on them or presenting the final recommendations or strategies to the client.

7. Implement Financial Planning Recommendations

• Complete the implementation actions for which you have assumed responsibility.  
• Support and manage referrals to other professionals or service providers.

8. Highlight Importance of Regular Reviews

• Emphasize the need for ongoing review and updates to reflect changes in the client’s life or planning environment.

The FP Canada Standards Council Financial Planning Practice Standards (the “Practice Standards”) set out in the FP Canada Standards Council™ Standards of Professional Responsibility, provide guidance to Certificants when providing financial planning services to clients. The Practice Standards outline the process that must be followed in any client engagement where financial services are being offered, not just when delivering a comprehensive Financial Plan.

The sequence in which the Practice Standards are presented is not prescriptive. In certain cases, several Practice Standards may be applicable simultaneously; for instance, identifying a client’s goals, needs, and priorities (PS.3) can occur alongside information gathering (PS.4). Additionally, it may be necessary to revisit a Practice Standard multiple times within an engagement; for example, adjustments to assumptions or the receipt of new client data may necessitate re-evaluating recommendations and reassessing the client's circumstances (repeating PS.5 and PS.6). The Certificant must exercise professional judgment in determining the optimal order of steps to effectively address the client’s objectives.

The Standards of Professional Responsibility include the following Practice Standards:

PS.1 Explain the Role of a Financial Planner and the Value of Financial Planning

Ensure the client understands your role, including the scope of services you can provide and the value of engaging in the financial planning process. This process includes identifying and developing recommendations for implementation and monitoring and updating the Financial Plan on an ongoing basis, to meet the client’s personal goals, needs, and priorities.

PS.2 Define the Terms of the Engagement

Work collaboratively with the client to define and agree on the scope of the financial planning engagement and services to be provided. For example: whether this is a continuing or time-limited engagement, your role as the financial planner, the client’s roles and responsibilities, and your level of involvement in implementing recommendations, monitoring, and the involvement of other professionals. The creation of a formal Terms of Engagement Document is considered best practice.

PS.3 Identify the Client’s Goals, Needs and Priorities

Discuss and document the client’s goals, needs, and priorities before identifying possible strategies or making recommendations.

PS.4 Gather the Client’s Information

Gather qualitative and quantitative information relevant to the engagement. Identify and resolve any gaps in the information required before assessing the client’s current situation and making recommendations.

Qualitative information helps a financial planning professional understand who the client is, what is important to them, and why. It helps financial planning professionals understand the client’s goals, needs, and priorities, and includes information such as the client’s attitudes, beliefs, biases, experiences, motivations, and values. Quantitative information helps a financial planning professional understand the client’s current financial situation and analyze the client’s ability to achieve their goals, needs and priorities.

PS.5 Assess the Client’s Current Situation

Identify, document, and evaluate the strengths and weaknesses in the client’s current financial situation, including material assumptions that are being used. When assessing the client’s current situation, the financial planning professional should consider the client’s: financial position, ability to manage financial emergencies, ability to meet their financial obligations, and their projected ability to meet their goals, needs and priorities. Perform required calculations, develop needed projections, and analyze and integrate the resulting information relative to the client’s personal goals, needs, and priorities. The results of such calculations, projections, and analysis should be documented.

PS.6 Identify and Evaluate the Appropriate Financial Planning Strategies

Identify and assess the possible financial planning strategies to help achieve the client’s goals, needs, and priorities. Identify and document any gaps or impediments to realizing the client’s goals. Develop options and potential solutions to achieving the client’s goals, needs, and priorities, recognizing any personal biases, and focusing on the client’s best interests.

PS.7 Develop the Financial Planning Recommendations

Develop and document recommendations to help the client achieve their goals, needs and priorities, including recommended timing, priorities, and interrelationships of recommendations. Any new potential or actual conflicts of interest that may arise specific to the recommendations should be considered and addressed.

PS.8 Compile and Present the Financial Planning Assumptions, Recommendations and Supporting Rationale

Document and present the financial planning assumptions, recommendations, and supporting rationale in a way that supports the client’s engagement and informed decision making. Communications to the client should be accessible, timely, understandable, and thorough to ensure the client understands the benefits as well as the risks and costs of the recommendations. As a matter of best practice, recommendations to the client and the client’s decision and instructions to proceed should be obtained in writing. If provided orally, the recommendations should be confirmed, in writing, to the client as soon as possible. All pertinent information, including agreed to and refused recommendations should be documented.

PS.9 Discuss Implementation Action, Responsibilities and Time Frames

Gain and document the client’s decision and instructions regarding implementation actions, responsibilities, sequencing, and timing. If implementation involves other professionals or is not included in the scope of engagement, discuss, confirm, and document next steps. Any referrals to other professionals must be made in accordance with the Disclosure Requirements and Financial Planning Services rules in the Rules of Conduct.

PS.10 Implement the Financial Planning Recommendations

Complete the implementation actions for which you have assumed responsibility as part of the financial planning engagement. For direct referrals to other professionals or service providers, follow-up should be conducted, with the client’s consent, to ensure completion of the referred action. For tasks for which the client has assumed direct responsibility, monitor the client’s progress and actions towards implementation and, where necessary, ensure the client understands the impact of failing to implement.

PS.11 Monitor and Review

Where the engagement is continuing and/or includes monitoring and review, the client should be made aware of the importance of the review and ongoing monitoring of their situation relative to their goals, needs and priorities. You should review the client’s financial plan periodically and may establish a review schedule (for example, annual reviews) with the client. In addition to this regular review, plans should be reviewed when there are material changes in the client’s personal circumstances or goals, or material changes to the assumptions underlying the plan. Monitoring and review may include: updating or redefining the scope of the engagement; discovery; analysis; documenting new or revised assumptions and recommendations; and identifying implementation actions. Where a financial plan document was provided to the client, an updated plan should be prepared and provided to the client.