Broker Check
The Process

The Process

April 16, 2019

This month marks the last in our financial planning series. If you’d like me to write about any specific topic in upcoming months, email us. We’ll put your idea in the hopper.

January's and February’s posts focused on the what of financial planning. March’s post focused on the why of financial planning and the why of working with a Certified Financial Planner™.

This month, I’m writing about the how of financial planning. Understanding what something is and why you should do it is the easy part. Getting started can be the tough part.

To illustrate our process, I’m using Rocky and Adrian Balboa as my fictional clients. It will also be my last Rocky reference—for now. I can’t help myself. It’s one of my favorite movie franchises.

On to the how. The how is our financial planning process. It has 7 steps. I’d like to tell you I created the seven steps. I like seven. It’s a lucky number. When I played baseball, I wore number 7. When I played football in high school, my jersey was number 77. I was born on the 7th day of the month. I had no choice, really. Number 7 chose me at about age 6.

The seven-step process we’ve adopted was created by the Certified Financial Planner Board of Standards™. The CFP Board’s process is very similar to the one I use. Plus, it’s clear and easy-to-follow. Since I obtained the Certified Financial Planner™, or CFP®, designation in 2013, I am proclaiming myself, officially licensed to use the steps. I also transparently admit that, “I liked the exam so much that I took it twice.”

Our 7-step process for financial planning creates a track to run on while pursuing each goal.

Step 1
Understanding the client’s personal and financial circumstances.
This information is gathered at the initial discovery appointment and sometimes a second appointment. “You don’t really understand a person until you’ve walked a mile in their shoes” applies here. My first task is to gain an understanding of who Rocky and Adrian are. I meet them after Rocky III, in early 1985.

  • They have been married for about 9 years.
  • They have an 8-year-old son.
  • They have a large amount of disposable income.
  • They have a large house and a large mortgage to match.
  • Family is very important to them and they want to provide for themselves and Paulie, Adrian’s brother.

I also need to know what resources they have, tangible and intangible.

  • Tangibles: Income after all expenses (disposable income) derived from boxing matches, income from investments in real estate and the stock market. This is the 1980s. The stock market was gangbusters and highly unregulated.
  • Intangibles: Rocky is a fighter and never quits. He’s got tenacity in spades. Adrian is the educated one and not much of a risk taker. She brings a more logical viewpoint to their decisions. It’s clear that in each set back, they stick together ultimately.

During this appointment, I assess that I can help the Balboas. I let them know how I can help and what the process looks like. First, they need a financial plan. Followed by investment management advice and implementation guided by the plan. I tell them my fee for their plan, which is $200 in 1985 dollars. I also give them my fee schedule for asset management, which is separate from the plan. I want them to know exactly what service to expect and what they are paying for.

After this first meeting, I know that I can work well with them. But in order for me to start working with them, I need a signed Financial Planning Engagement form first. These details outline the parameters of our relationship.

Rocky makes decisions quickly, so he is ready to sign, but Adrian needs more time. A week later, they drop off the signed form at my office. Rocky, ever the consummate promoter, gives me a signed picture of him in the ring with Apollo. I put it on my office wall and secretly wish I had been ringside for that fight. But alas, I was 7 in 1985 and this interaction, although charming, is a figment of my vivid imagination.

Step 2
Identifying and selecting goals.
For the Balboas, this happens at a second hour-long appointment. I need to know what they are trying to accomplish. With goals, you break them down into personal and financial, as well as, short-term (1-5 years) and long-term (5+ years). This is where Rocky and Adrian know all the answers, but they need an experienced planner to ask the right ones. We talked about general goals in our first meeting, but now I need more details.

  • Rocky’s long-term financial goal is funding his son’s college education. He knows the dangers of boxing and wants his son to have opportunities he didn’t.
    • I think this is a great goal and can develop a plan for that. But I want to know how he sees himself, and them as a couple, in retirement. It becomes clear that he doesn’t have a plan for retirement, nor has he thought about how he’d like to live life then. After I ask him several questions, he answers with wanting to provide well for his family. Retirement from boxing is at least 5 years away. Ultimately, his goal is to avoid having to box for a living. For now, this is a good goal.
  • A short-term financial goal is to fly to the USSR to fight the 6’4” Soviet Ivan Drago. They will be there for weeks, so they need help deciding where best to take the money from.

  • A personal long-term goal for Adrian is having her husband physically healthy and safe. Material things don’t matter to her. She just wants them to be together as a family. And she’d like Rocky to stop fighting monster-sized Russians.

If the goals are important to the Balboas, they are important to me. Together, we then prioritize which goals to focus on first.

Step 3
Analyze the client’s current course of action and potential alternative courses of action.
This is done by my team and myself. It may involve hours of analysis or it may be a simple plan with a few minor tweaks to what they’re currently doing. But that’s not what I eventually decide for the Balboas.

First, I give them some homework. “Get me all your financial statements.” There is no secure cloud for uploading so they drop those off at my office.

Homework assignment #2: I ask Rocky and Adrian to complete a risk questionnaire. They take a paper Scantron quiz with a #2 pencil instead of using an ahead-of-its-time software called Nitrogen (formerly Riskalyze. In 2023, Nitrogen is a program that I invest in for my clients. It’s a series of questions to determine their risk tolerance. But back in 1985, the Scantron machine delivers their scores. Rocky comes out as a 98 out of 100. He’s an aggressive investor. Adrian’s score is a 35. She’s very conservative and only takes measured and carefully thought-out risks.

Now I start digging into their current investments and actions. I find some that some investments, not only seem out of line given their risk tolerances, but the credit worthiness of the company is highly dubious. I make a quick phone call to ask how they decided on these investments. Rocky tells me they have turned certain investment decisions over to Paulie, Adrian’s brother. They trust him and besides, he needed something to do. Alright. I mull that one over.

I move on to their income sources. Since the Balboas are making a lot of money with Rocky in his prime heavyweight boxing years, they need a financial plan. Their situation is complex. They have a home with a mortgage, expensive cars, and 1099 employees like Duke, his trainer.

In addition, they are going to have an estate tax problem when one dies, or both die and the estate passes to their son. I need to refer them to an estate planning attorney to help preserve any estate tax exemption they will receive.

I already know from previous conversations that they have a great CPA. So, when presenting my recommendations in Step 5, I will explain again how part of my job is to work as their financial quarterback and coach. I coordinate the services of their attorney and CPA.

I then examine all the other components of a financial plan. After putting the remaining components together, I have a complete plan.

Step 4
Developing the financial planning recommendations.
The current course of action will not get the Balboas to their goals, so my team and I craft a plan that gets them there. For their financial goals, we research what tools are necessary for the job. We wade through the complex world of financial products and find the right fit at a competitive price.

Recommendation #1: Risk Management via a disabled Rocky
One hole in their current strategy is the lack of a disability policy for Rock. But no company is going to underwrite that. I come up with a different strategy to offset that risk.

Recommendation #2: Their current advisor, Paulie
I dig into Paulie’s background. He doesn’t have any licensure, education, nor experience. I will have to come up with a tactful way to present this. Their goals will be in jeopardy if they continue to not monitor Paulie’s investment of their money. Maybe Paulie should stick to eating Baskin Robbins ice cream in a wife beater. Poor Paulie.

Recommendation #3: Funding their son’s college education
Set up a 529 plan for Robert Balboa, Jr. The Balboas need all the tax deductions they can get.

Recommendation #4: Risk mitigation with life insurance
While both need some life insurance, Rocky is probably un-insurable. We’ll try to get him through underwriting anyhow. I crunch the numbers and come up with an insurance policy face amount and features needed for Adrian.

Other recommendations: How to invest their emergency fund, analyzing health and property insurance coverage to make sure it’s adequate, and finally, wealth transfer and legacy planning strategies.

I then combine all these recommendations into a report. The Balboas will leave my office with their report after Step 5. It’s not a 100-page report that will gather dust in their basement. It’s a concise document that outlines the track to run on. It puts on paper:

  • their goals
  • the plan
  • the strategies to be used
  • the services and products recommended
  • and how we will monitor it all

Step 5
Present the financial planning recommendation(s) to the client.
This presentation includes our role and responsibilities and the client’s responsibilities. By now, the Balboas already know about this, but I like to reiterate who is responsible for what. I also outline the products and services recommended.

Recommendation #1: Disability risk
I decide on investing vehicles more in line with their risk profiles from Step 3. Due to Rocky being very aggressive and Adrian being uber conservative, I come up with a diversified strategy that they can both be comfortable with.

Recommendation #2: Their Current Advisor’s Strategy
After digging into Paulie’s background, I recommend that they fire Paulie as their advisor. The reality is that he doesn’t have the experience to handle this prudently. Since he is family, they are concerned about how to communicate that. I give them some advice and we talk through the potential conversation. I stress to them the facts of the situation and remind them of their goals. They agree with this course of action and ultimately, they avoid the fallout in Rocky V. There are still losses from Paulie’s investments, but they aren’t as severe as they could have been. This is fiction. I always hated how Rocky V started anyhow—with a sad-looking and bankrupt Rocky.

The remainder of recommendations are presented. This is very much a two-way conversation. We answer any and all questions. And we ask for feedback. This is Rocky and Adrian’s money. My goal is that they both understand what we are recommending. The plan doesn’t work without this crucial kingpin.

Once Rocky finally understands it (he’s not too smart by his own admission), he can explain it to Adrian. Eureka. They have now met my goal of client understanding and I am comfortable moving to the next step.

Step 6
Implementing the financial planning recommendations.
At this point, the plan is in the final draft version and we are ready to begin. For the Balboas, this is revoking Paulie’s access to their bank accounts. It also means opening multiple investment accounts and applying for life insurance.

It means paperwork and a lot of it. But our team handles that and explains it all. Rock has a lot of questions, but Adrian and my team explain everything before he signs.

Since my crystal ball works in this situation, I foresee how one situation resolves. When Rocky decides to fight Drago, a few months after he meets me, he calls me to see how to finance his Russia training and trip. I call his CPA to decide how best to do it in a tax-sensitive manner. I make sure there isn’t something I need to know before I advise Rocky. My goal is for no surprise tax bill to arrive in 1986. This decision doesn’t need input from his attorney. So, I move on to reviewing his accounts.

I then call him back on my brick 1985 cell phone (a la Gordon Gecko in Wallstreet) and advise him to liquidate Microsoft stock.

I recommend this because Rock just doesn’t see a future in computers. My advice aligns with his goals. These shares also have the least amount of long-term capital gains. Rocky agrees and tells me execute the trade on his behalf. My team and I do any paperwork associated with this then advise him when the check will arrive in his good old vintage mailbox.

Step 7
Monitoring progress and updating the plan.
At this point, we do not cut the Balboas loose to fight the behemoth Russian on their own, as in, “Here’s your plan, now you figure out what to do with it.” A financial plan is useless if not implemented.

We stay in their corner and cheer them on. We manage the investments. We encourage them as milestones are reached. We help them get up when there are set backs. And we’re available to advise them when there are financial decisions to make.

When milestones are reached, we know. We monitor progress by percentage completed toward each goal. At our appointments, we present those numbers. With Rocky in constant training, they don’t focus day-to-day on their financial goal progress. With the multiple layers of monitoring we implement, their accounts have more than just my team keeping track and implementing. There is a supervisory office, our broker/dealer, and third party money managers.

Along the course of their lives, there will be life changes. For the Balboas, we evaluate each occurrence. We update the plan if needed. We implement the changes together. And most importantly, we help the Balboas to stay on track.

When Adrian dies (after Rocky V), he calls me and says he needs a change. He wants to open an Italian restaurant. "You know, to honor my Italian Stallion nickname." We evaluate the curve ball of Adrian’s early passing and easily decide that this requires a change in the plan. We then implement the plan so he can become a restauranteur. It sets the stage for Rocky to become Adonis Creed’s trainer in Creed. Adonis, or Donnie as he goes by, is Apollo’s son. Rocky fought his dad in the first 2 movies. Such a brilliant Part II of the Rocky franchise. Kudos to Stallone on this reinvention.

Back to the process. Our job is to walk our clients, the Balboas, and then later, Rocky and his son, Robert, step by step through this process. Our fiduciary duty extends to the next generation. It keeps us both accountable and ensures the longevity and consistency of our advising relationship.

It also informs everyone—ahead of time—how it is going to unfold. We are not just making it up as we go along. We follow the process because it works.

On to you. Engaging in a financial planning process can move the vision for your future to present day reality. If you’ve been thinking about any of these things, let us know. We’re here to help.

I will sign off with a movie clip from my favorite Rocky movie. I present for your viewing pleasure: Rocky IV’s obligatory training montage. It starts off slow. But wait for the epitome of 80’s music a la the rad keytar instrument. The snowy landscape footage was filmed in Jackson Hole, Wyoming. And that climb up the mountain supposedly in the USSR? Grand Teton National Park. Thank you, USA.

* All images and references belong to their respective copyright holders.
* Cover photo courtesy ofJo Szczepanska on Unsplash.