Money Matters with Adrian Murphy.

Nov 25 2011 by Lisa Boyle, Ayrshire Post (main ed)

THIS week, November 21 to 27, is financial planning week.

This is a consumer awareness campaign from the Institute of financial planning aiming to try and help the public understand more about financial planning and how it can benefit them.

There is a clear distinction between traditional financial advice and professional financial planning.

Traditional financial advice, while not necessarily a bad thing, would tend to be driven by products and commission.

One of the main problems with this, is that the adviser generally only gets paid at the point a product is arranged.

As I discussed a couple of weeks ago, this practice will disappear at midnight on December 31 2012 when the Retail Distribution Review is implemented.

The financial planning process is much more closely aligned with the FSA's objectives of being product neutral and fee based.

The value in the financial planning process is in the planner's skill at gathering the right information from you, identifying your needs and objectives and ultimately the presentation the financial plan.

There are six stages to this process:

1. Establish and define the relationship with the client

2. Collect the clients information

3. Analyse and assess the clients financial status

4. Develop the financial planning recommendations and present them to the client

5. Implement the clients financial planning recommendations

6. Review the clients situation

For a financial adviser to embed this process within their business takes time and an understanding of the needs of the client.

Taking the client through an in depth discovery, risk assessment and cash flow modelling process not only helps the planner develop the plan, but also gives the client a far better understanding of their own financial situation.

The real value therefore is in the presentation of the plan rather than the sale of a product, and the planner will change a fee at this point.

This is absolutely correct and has the additional benefit of peace of mind for the client knowing that there is absolutely no product bias in the process.

Of course the plan would be rendered useless if it is not reviewed on a regular basis along with repeated analysis of the client's circumstances.

Traditionally a client would go to see a financial adviser with a specific objective, for example they only wish to review their pension arrangements or discuss a specific policy or investment

It is down to the skill of the planner in the initial meeting to establish the terms of the relationship with the client and agree that they wish to engage in this process.

As you can imagine there is a lot more to this than I have room for in this column so please contact me at moneymatters@murphyfinancial.co.uk if you would like to know more.