Financial Planning Annual Review

6 Steps to Assess Your Review Process

June 27 - 28, 2009. When is your next financial planning annual review?

I am amazed how often I meet wealthy investors who do not have a documented financial plan. Perhaps there is no need felt for this until it is too late.

A colleague in our office often likens his role as a Certified Financial Planner to that of a medical General Practitioner (GP). A GP needs to have an overall understanding of your medical history and medical conditions. Your GP will be able to assist you with most of your questions and queries, but will refer you to a specialist if there is something more exotic that requires treatment or investigation. The role of a Certified Financial Planner is broadly parallel to this in dealing with your financial health.

This was confirmed recently during an annual review with a client who mentioned that the review was much like his annual check-up with the family GP, and jokingly asked whether we should be called Doctor. The statement was based on the fact that he sees us every year for a 'check-up' - his financial planning annual review.

Your annual check-up with the GP covers certain areas, so should your financial health check. Just as your medical health check changes as you get older, so does your financial planning annual review as your personal circumstances and those of the environment in which you earn a living change.

Your financial planning annual review should cover six key steps:

Step 1: Update your personal details

The financial advice required by a single person with no dependents is different from that of a married person with dependents. Likewise, a change in career, or earning ability, may have a significant impact on your lifestyle habits or retirement planning capabilities. Ensure that your contact details and personal details are up to date.

Step 2: Update your balance sheet

Ensuring that your assets and liabilities are reflected accurately is vital. These will affect not only the content of the advice relevant to you, such as level of assurance cover, but also impact investments where tax is relevant. If you have incurred additional debt during the preceding year, or conversely reduced debt, you may find your level of life, disability or income protection either too high or too low. Knowing your net worth is important, as it drives the decision as to how best to structure your will and your estate.

Step 3: Retirement Planning

Both pre-retirement and post-retirement planning is essential. Both stages need to be reviewed on an annual basis, taking in to account changes in circumstances in the preceding year. An in-depth analysis should be performed every year. You need to ensure your financial plan remains in line with your long-term goals. If not, are your long-term goals appropriate and realistic? Changes can be made either to your ultimate goals, or to your current investment decisions, bearing in mind the investment risk this may entail. You may be a long way from retirement, but decisions you make now can have a significant impact on your long-term financial health.

Step 4: Disability and Estate provision

Your income-earning ability is your most valuable asset. It is far more valuable than your house or car. You need to ensure that this asset is adequately protected. If you are unable to earn an income through impairment or disability, how does this affect your dependents? If you pass away, will your dependents be financially stable or destitute? A financial planner or accountant should be able to do an estate cash flow to determine the requirements to settle the estate. If there are insufficient liquid investments to cover estate duty, then additional life cover should be considered.

Step 5: Estate Planning

Everyone should have a will. Not having a will places additional burdens and frustrations on those left behind, and may result in investments and payments being delayed. This could have a significant impact on your dependents. Your will needs to be assessed to ensure that it remains appropriate to your circumstances. Has there been a divorce or death in the family in the preceding year? Are these individuals still named in your will, and who should be removed? Is your will efficiently structured from a taxation perspective?

Step 6: Medical Aid

Is your medical aid scheme still appropriate to your particular circumstances? Are there beneficiaries that need to be added, or removed, from cover? You are able to change your medical aid options on an annual basis. Select the option most suitable to your circumstances at your financial planning annual review.

A Certified Financial Planner® professional is interested in ensuring that you are in sound financial health. By having an financial planning annual review and doing a 'health check' means you are able to make those adjustments that lead to realising your financial goals. I have an annual financial checkup with my financial plan. You may wish to consider one too.

Debbie Netto-Jonker, CFP®, is founder of Netto Financial Services and was financial planner of the year in 2001.
Her business partner Ian Beere, CA(SA) CFP® was Financial Planner of the Year in 2007.