The second phase of planning begins with data collection. The extent of data required depends on the desired degree of sophistication of the financial plan.
For instance, the collection of data required to create only an investment man- agement plan would be much less extensive than required to formulate a comprehensive plan.
Qualitative Data
The first phase of data collection revolves around dealing with the “inside” or qualitative issues. By definition, each client is unique. The planner must have a good handle on the client’s perspective on financial challenges before collect- ing “outside” or quantitative data. Typically, qualitative data are collected via free-flowing conversations with the client. For the sake of efficiency, such a con- versation can be based on a careful questionnaire that can help the client think about the key issues on which the planner wishes to concentrate. In most cases, in sizing up a client’s overall financial situation, qualitative data may include the following:
• Client’s current core values, beliefs, and attitudes (important and not-so-im- portant items, fears, expectations, and dreams)
• Prioritized goals
• Time horizon for each goal
• Level of risk tolerance
• Preferences and constraints
• Client’s knowledge and experience in dealing with financial issues
• Special family circumstances
• Risk exposures (such as family health history, job security, participation in dangerous hobbies, and so on).
Early in the planning process the financial planner needs to develop a clear pic- ture of the client’s goals. Assuming that clients rarely face a single goal, an
understanding of the client’s priorities becomes paramount. In essence, chal- lenging clients to prioritize their goals: (a) forces them to think clearly, (b) helps them to identify all their goals, (c) establishes a rational basis for charting a course of action, (d) encourages them to prioritize their goals, and (e) helps them to quantify the goals to be achieved within a given time frame.
Quantitative Data
Quantitative data provide a detailed view of the client’s current and projected financial situation. Typical sources and key documents of quantitative data include the following:
• Assets, liabilities, and cash flow information
Sources and amounts of income
Itemization of outflows
Investments (balances, basis, titling, and beneficiaries)
• Current account statements
Bank statements
Investment and brokerage statements
Individual retirement account (IRA) statements
Credit card statements
Cash value in permanent life policies
• Loan statements (terms, balances, and costs) and leases
Home mortgage
Home equity
Auto loan
School loans
Private loans
Rental leases
• Insurance policies and employee benefits package
Life insurance contracts
Health insurance policies (health, disability, and long-term care)
Property/casualty policies
Liability policies
Employer medical benefits package
• Income tax statements (several years with all schedules)
• Employee pension statements and benefits package
Plan statements
Employer retirement benefits package
• Estate and legal documents
Latest will
Powers of attorney
Living wills
Trust agreements
Prenuptial arrangement
Divorce decree
• Titling documents
Deeds
Contracts
Titles
• Business documents
Corporation or partnership documents
Business income tax returns
Financial statements (balance sheet and income statement)
Stock purchase agreements
Employment agreements
Employee medical and retirement benefit programs
Leases.
Quantitative data are typically collected via a questionnaire, samples of which can be easily found on the web.
Collection of Additional Information
Frequently, financial planners discover that major gaps still exist in the submit- ted questionnaire which must be collected before proceeding further. Since collecting reliable information is of utmost importance, financial planners use a checklist similar to the one that follows:
• Client circumstances (e.g., family history, prioritized goals and objectives, time horizons, network of friends and associates, and job stability)
• Data relating to values, beliefs and attitudes, risk preferences, constraints and preferences, and interests and hobbies
• Quantitative data for each of the planning areas: budgeting, risk manage- ment, insurance coverage and employee benefits, investment planning,
funding for higher education, tax planning, retirement planning and employee benefits, estate planning, and closely held business planning
• List of professional advisers such as CPA, banker, estate planner and stock broker.
As stated, collecting the missing data can become a challenging task. The client might have difficulty obtaining the employer benefits package, or might not be able to locate the original investment records. In these and other related instances, recognizing that clients frequently find locating missing data confus- ing, laborious, and daunting, the planner can play a vital role in assisting the clients. Explaining why these data are urgently needed might also alleviate the anxiety client’s experience.
One should recognize that sometimes even the best efforts to collect the miss- ing data fall short. Fortunately, to handle these instances in a professional manner, the CFP Board offers guidance in its Standards of Practice: “If the prac- titioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either: (a) restrict the scope of the engagement to those matters for which suf- ficient and relevant information is available, or (b) terminate the engagement.”