The six steps of the financial planning advice process (2024)

Financial planning may be second nature to you, however, the six key steps in the process each align with the Financial Advisory and Intermediary Services (FAIS) Act.

Here are the steps and the legislation behind them:

#1: Client introduction and establishing the relationship
You probably orally introduce yourself to potential clients and give them your business card. To make your introduction official, you provide a Statutory Introduction Letter, as Sections 4 and 5 of the General Code of Conduct (GCOC) requires that you give specific details to clients. Your letter should fully inform them about your FSP, your product suppliers and yourself.

This is also the ideal time to provide your client with details of your offering through a service level agreement (SLA), which is also required in terms of Section 3(1)d of the GCOC:

“the service must be rendered in accordance with the contractual relationship and reasonable requests or instructions of the client, which must be executed as soon as reasonably possible and with due regard to the interests of the client which must be accorded appropriate priority over any interests of the provider”

The aim of your SLA should specify each person’s role and responsibility to clear any gray areas. It should confirm and document all material aspects of the contractual relationship between you and the client.

#2: Gather information and determine goals
The next step is to gather all relevant information from the client, as your advice is based on this. Critically, this information will also help you to meet the requirements of providing advice in that it is the step in your process where you gather client information regarding needs and objectives, financial situation, risk profile and financial product knowledge and experience.

In short, the aim is to identify and quantify the client’s goals, needs and shortfalls with the aim of providing appropriate advice.

A practical solution to information gathering is a fact-finding document that will help you gather and organise required information. It will typically record information about the clients circ*mstances, needs, wants and financial goals and also contains other factual information like a client’s income and expenses, assets and liabilities which informs your financial needs analysis.

However, remember that before you obtain information from your client, you have an obligation in terms of the Protection of Personal Information Act (POPIA) and GCOC S3(2) to obtain your client’s consent to access, obtain and keep their personal information. In practice, you will require a Client Consent or Authority Letter which will authorise you to obtain information on a client’s existing financial portfolio, as well as to keep and maintain personal information. Details of your POPIA obligations, duties and rights can also be included to your SLA.

#3: Analyse and evaluate financial position
After gathering the relevant client information, you can use a financial needs analysis tool to analyse the client’s financial position, and their future financial goals and needs. You can use either online software or paper-based financial needs analysis tools, in line with Section 8(1)a and b of the GCOC an adviser must conduct an analysis based on the information obtained, specifically for purposes of providing advice.

“A provider must prior to providing a client with advice –
(a) obtain from the client such information regarding the client’s needs and objectives, financial situation, risk profile and financial product knowledge and experience as is necessary for the provider to provide the client with appropriate advice, which advice takes into account-
(I) the client’s ability to financially bear any costs or risks associated with the financial product;
(ii) the extent to which the client has the necessary experience and knowledge in order to understand the risks involved in the transaction; and
(iii) where the client is a pension fund, medical scheme, friendly society, employer or other entity that is being advised on entering into a financial product or transaction aimed at providing benefits for its members, employees or other underlying natural persons. the reasonably identified collective needs and circ*mstances of such members, employees or other natural persons.
(b) conduct an analysis, for purposes of the advice, based on the information obtained;”

#4: Present analysis and recommended advice
Now you can prepare a detailed financial plan that includes solutions and recommendations which you feel are appropriate for the client’s needs which is presented to the client in the form of a financial needs analysis, a financial plan, financial recommendation or financial portfolio.

Your plan needs to fully disclose the nature of your proposed service or product. The client needs to understand the advice in terms of their identified needs and circ*mstances and be placed in a position to make an informed decision as Sections 7 and 8(2) of the GCOC requires.

You must send your client a written proposal together with quotations. Your proposal should explain your rationale, the product selection and recommendation and allow for your client to provide feedback.

If the client wants to amend your proposal and you adjust it in line with the client’s request, keep detailed records of the changes as well as any additional discussions, warnings or circ*mstantial information that is related to those changes. Section 8 (4)c of the GCOC is clear on appropriate risk warnings in this instance:

“Where a client elects to conclude a transaction that differs from that recommended by the provider, or otherwise elects not to follow the advice furnished, or elects to receive more limited information or advice than the provider is able to provide, the provider must alert the client as soon as reasonably possible of the clear existence of any risk to the client, and must advise the client to take particular care to consider whether any product selected is appropriate to the client’s needs, objectives and circ*mstances.”

#5: Implement recommendations
Section 2 of the GCOC states that you have a general duty as a financial services provider:

“A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”

After a client accepts your proposal, you have a duty to carry out their instructions timeously.

You also will need to compile and retain an appropriate record of advice and furnish the client with a copy of that record of advice to maintain an accurate account of the transaction. The requirements for a written advice record is documented in Sections 9(1) and (2) of the GCOC:

“(1) A provider must, subject to and in addition to the duties imposed by section 18 of the Act and section 3(2) of this Code, maintain a record of the advice furnished to a client as contemplated in section 8, which record must reflect the basis on which the advice was given, and in particular –

(a) a brief summary of the information and material on which the advice was based;
(b) the financial products which were considered; and
(c) the financial product or products recommended with an explanation of why the product or products selected, is or are likely to satisfy the client’s identified needs and objectives; and
(d) where the financial product or products recommended is a replacement product as contemplated in section 8(1)(d) –

(aa) the comparison of fees, charges, special terms and conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circ*mstances in which benefits will not be provided, between the terminated product and the replacement product; and
(bb) the reasons why the replacement product was considered to be more suitable to the client’s needs than retaining or modifying the terminated product.

(2) A provider, must provide a client with a copy of the record contemplated in 9(1) in writing.”

It is also important that you keep records to ensure that you are able to prove that you have complied with these requirements, which includes your record of advice, together with a copy of your financial needs analysis, proposal and quotations.

If you intend to implement a client’s financial plan via a phased approach, and you have decided how you wish to stagger the plan and when to implement the different phases, then keep proof that the client agrees with your proposal.

#6: Review the financial plan
Clients’ financial plans must be reviewed regularly, which is in line with Section 7(4)d of the GCOC and states:

“A provider who has provided advice to a client or is rendering ongoing financial services to the client in respect of one or more financial products, must on a regular basis (but not less frequently than annually) provide the client with a written statement identifying such products where they are still in existence, and providing brief current details (where applicable), of –
(a) any ongoing monetary obligations of the client in respect of such products;
(b) the main benefits provided by the products;
(c) where any product was marketed or positioned as an investment or as having an investment component, the value of the investment and the amount of such value which is accessible to the client; and
(d) any ongoing incentives, consideration, commission, fee or brokerage payable to the provider in respect of such products”

There is an exception to the above, in that a written annual statement does not have to be provided where the client is aware, or ought reasonably to be aware, that you do not render, or have ceased to render ongoing financial services to the client in relation to those products.

In your client reviews, it is helpful to present a portfolio summary to the client and evaluate the progress and investment performance, any life or other changes that impact other types of financial products and appropriateness of cover and amounts. You can also use the meeting to review the client’s risk profile and revisit their financial goals together with their financial plan. Be sure to highlight and document any changes that may affect the client’s financial plan. You may need to amend the financial plan if new goals are defined.

To ensure clients know what to expect, you can specify the frequency and nature of your reviews in your SLA.

By following all the steps of the financial planning process, your clients will remain informed, appropriately advised and will understand their financial journey, which are all aspects that help with client retention and client satisfaction. Importantly, by following these steps you will also comply with the regulatory requirements of providing financial services to your client. If you need help to implement any of the above steps in your business, please contact your Masthead compliance officer or regional office.