CHAPTER 1

THE FINANCIAL PLANNING

ENVIRONMENT,
PHENOMENON AND PROCESS
 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
PHENOMENON AND PROCESS

Overall Objective:

To understand the development of financial planning in Malaysia,

the role of the financial planner and the 6 steps used in the
financial planning process.
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Students must be able to:

Define ‘Financial Planning’.

Understand the Main Obstacles to Financial Planning
Distinguish the Traditional Approach From the Comprehensive Approach.
Make the Distinction Between the ‘Product’ and ‘Process’ Approach
Explain the Impact of Inflation and High Interest Rates
Demonstrate the Meaning of ‘Economic Independence’
Identify the Six Step Financial Planning Process
Explain Each Step of The Process
Identify and Explain the Six Main Components of Financial Planning
Explain the Role of a Comprehensive Financial Planner
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MFPC’s DEFINITIONS OF FINANCIAL PLANNING

FINANCIAL PLANNING

A process or methodology of assisting clients in determining their financial

goals, objectives and priorities and the resources to meet them in an optimal
and practical manner.
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OBSTACLES TO ACHIEVING FINANCIAL OBJECTIVES

Personal obstacles Deep seated feelings and emotions that

includes fear, at the core of people’s inability
to solve problems when facing complex
needs
Lack of confront Many are unwilling to confront or face the
reality of the situation they are in.
Procrastination Putting off something
to later, or for a more appropriate time is a
common human characteristic.
Ineffective Effective communication contribute to a
better understanding of a client’s financial
communication situation.
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OBSTACLES TO ACHIEVING FINANCIAL OBJECTIVES

Confusion in the There is a communication overload with

financial services financial institutions using the media
effectively to promote their products and
environment
services.
Inflation and Inflation has reduced the real returns on
taxes most investments, while take a big bite at
the available resources
Risks to Income Risks can be managed
and Assets
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OTHER ISSUES IN FINANCIAL PLANNING

Traditional Approach Vs. Comprehensive Approach

Product Versus Process

Competent financial planner

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Financial Planning 6. Monitoring the plan

5. Executing the plan

4. Develop & present a

plan
3. Analyzing information

2. Gathering information

1. Set Goals,& priorities

Building the Client-Practitioner relationship at all times throughout the process

 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
PHENOMENON AND PROCESS

KEY PURPOSE

Establish where the

STEP 1 client wants to go
and arrange them
Setting goals, in order of
objectives & importance
priorities
 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
PHENOMENON AND PROCESS

KEY PURPOSE

Procure crucial
STEP 2 information for
determining the
Gathering client’s situation
relevant data &
information
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TYPE OF INFORMATION

QUANTITATIVE DATA
 FAMILY PROFILE

 INFORMATION ABOUT CURRENT FINANCIAL ADVISERS

 ASSETS AND LIABILITIES

 CASH INFLOWS AND OUTFLOWS

 INSURANCE COVERAGE POLICY INFORMATION

 EMPLOYEE BENEFITS AND CORPORATE PENSION PLANS

 TAX RETURNS AND COMPUTATION FOR A FEW YEARS

 DETAILS OF CURRENT INVESTMENTS

 RETIREMENT SAVINGS

 BUSINESS OWNERSHIP DATA

 COPIES OF WILLS AND TRUSTS

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QUALITATIVE DATA
GOALS AND OBJECTIVES

RISK TOLERANCE LEVEL

ATTITUDE TO MONEY AND ITS VALUE

FINANCIAL DECISION MAKING STYLE – AD HOC VS. PLANNED, EASILY PERSUADED, IMPULSIVENESS

INTERESTS AND HOBBIES- DEGREE OF INVOLVEMENT

HEALTH AWARENESS AND STATUS OF SELF AND FAMILY

EMPLOYMENT PROSPECTS AND EXPECTATIONS

ANTICIPATED CHANGES IN LIFESTYLE

ATTITUDE TO LEARNING AND ADVICE

FAMILY RELATIONSHIPS, DEPENDENT CARE AND RESPONSIBILITY

 PLANNING ASSUMPTIONS, VIEWS ON ECONOMIC LANDSCAPE, THE GLOBAL ENVIRONMENT

 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
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KEY PURPOSE

STEP 3 Identifying the

clients needs,
Analyzing resources
information & constraints and
assessing options

financial status
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PHENOMENON AND PROCESS

KEY PURPOSE

Detailing the
STEP 4 problems and
solutions in a
Developing & strategized, written
presenting a format for the
client’s
financial plan for considerations and
implementation actions
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PHENOMENON AND PROCESS

KEY PURPOSE

Getting permission
STEP 5 and having the plan
implemented
Executing the effectively and
financial plan efficiently
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PHENOMENON AND PROCESS

KEY PURPOSE

STEP 6 Checking and

adjusting the
Monitoring execution to ensure
execution & goals and objectives
listed are met
reviewing of the
financial plan
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KEY COMPONENTS OF A FINANCIAL PLAN

Cash flow management - releasing

Personal Financial cash surplus from available
resources to allocate to established
Management goals is a matter of priority

Planning against risks through

Risk Management effective financial management and
transference of risk
& Insurance
Planning
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KEY COMPONENTS OF A FINANCIAL PLAN

Planning for the reduction of tax

Tax Planning liabilities and free-up cash flows for
other purpose

Planning, creating and managing

Investment capital accumulation to generate
future cash flows for reinvestment
management and spending
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KEY COMPONENTS OF A FINANCIAL PLAN

Planning for financial

Retirement independence at retirement

Planning
Estate Planning Planning for estate distribution
 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

PERSONAL DATA

Comprises of important personal and family data.

CLIENT’S GOALS & OBJECTIVES

Client’s goals and objectives in order of priority and its time frame.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

MAJOR ISSUES/CONCERNS

Address pertinent problems that might affect the client.

BALANCE SHEET / NET WORTH

An analysis of client’s net worth. Listing of assets and

liabilities.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

CASH FLOW MANAGEMENT

An analysis of client’s sources and uses of funds.

Individual income statement for current and relevant
years.
INCOME TAX

Client’s income taxes for the current and relevant years.

Forecast of income and deductions to estimate tax liability.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

RISK MANAGEMENT / INSURANCE

An analysis of client’s exposure to financial loss due to

mortality, morbidity, liability.
INVESTMENT PORTFOLIOS

Listing of current investment portfolio and analysis of its

liquidity, diversification and risk exposure. Suitability of
investment in relation to the client’s needs, goals and
objectives.
 CHAPTER 1 : THE FINANCIAL PLANNING ENVIRONMENT,
PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

INVESTMENT PORTFOLIOS

Listing of current investment portfolio and analysis of its

liquidity, diversification and risk exposure. Suitability of
investment in relation to the client’s needs, goals and
objectives.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

ECONOMIC INDEPENDENCE, RETIREMENT & EDUCATION

PLANNING, OTHER NEEDS

An analysis of a capital needed at some future time to provide for

financial freedom, retirement, education and other special needs.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

ESTATE PLANNING

Identification of assets that can be accounted for in the

client’s estate. An analysis of how it should be disposed or
distributed and taxation of the assets.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

ASSUMPTIONS USED IN ANALYSIS

The assumptions and basis used must be explained to the

client

ALTERNATIVE STRATEGIES AND

RECOMMENDATIONS

All alternative strategies must be reviewed and the

recommendations clearly state.
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PHENOMENON AND PROCESS

CONTENTS OF A FINANCIAL PLAN

IMPLEMENTATION SCHEDULE

The detailed implementation with dates and

responsibilities.

REVIEW AND MONITORING

Constant review and monitoring to fine tune the plan

 CHAPTER 1
THE FINANCIAL PLANNING
ENVIRONMENT,
PHENOMENON AND PROCESS

THE END