What should you look for in a proper financial plan?

Do you have a financial plan? It seems like a straight-forward enough question, but is it? In 2019, 54 per cent of Canadians reported having a financial plan. That number hasn’t changed since 2017. The 2017 study goes on further to say that of those who said they have a financial plan, 36 per cent describe it as a budget they review regularly, a short-term plan or ‘other’. By definition, those are not proper financial plans, and means that only 35 per cent of Canadians have financial plans. But do they? What constitutes a proper financial plan anyway?

True financial planning is about advice, solving problems or creating a plan to achieve one or more goals. You know you have a proper financial plan when:

  1. It is preceded by a Letter of Engagement.
  2. It covers six areas of your financial situation, possibly more:
    1. Cash flow & Net Worth
    2. Investment Planning / Strategies
    3. Retirement / Financial Independence Planning
    4. Risk Management
    5. Tax Planning
    6. Estate Planning
    7. Special Needs
  3. It identifies goals and objectives using S.M.A.R.T principles – Specific, Measurable, Achievable, Realistic, Timeline.
  4. Its assumptions are defined and reasonable.
  5. It provides alternatives for consideration.
  6. Its recommendations are based on analysis and are shown to be achievable.
  7. It provides a timeline for implementing the recommendations.
  8. It improves your financial literacy by educating you on the subjects that are relevant to you.
  9. It tells you what you need to know, not necessarily what you want to hear.
  10. It mentions financial products as a concept only, not by a specific name. i.e. Permanent Life Insurance rather than Manulife Performax Gold.

The narrative should be tailored to you – short and to the point. There are situations where a modular financial plan may address a specific need, but all areas should be considered in its conclusions. You need to know that the document you receive is a proper, comprehensive financial plan and not simply justification for selling a product.

If you are looking for a comprehensive financial plan including the components listed above, I suggest you consult the IAFP’s Find a Planner tool. You can find it here: Find a Planner.

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