Question

Explain the six-step process of financial analysis. (need 300-400 words)

Answer 1

Six-step process of financial analysis:

Step I:Establishing and defining the Professional relationship/Goal

Estabishing the goal or relationship is where the advisor introduces himself or herself a client or prospective client and explains the financial planning process.

The purpose of establishing the goal or relationship is to form the foundation or purpose of planning itself.Financial planners do this by asking open ended questions.For example;

i)What are your feelings about investing in the stock market?Why do you think yu feel that way?

ii)What are your financial strenths and weakness?

Step II:Gather the relevant data:

The relevant data you gather is required to make recommendations for the appropriate strategies and financial products to reach your goals.For example,what is your time horizon? Do you want to accomplish this goal in 5 years,10 years or 15 years?What is your risk tolerance?Are you willing to accept a high relative market risk to achieve your investments goals,or will a conservative portfolio be a better option for you?

Step III:Analyze the Data:

You have gathered the relevant data,now can analyze it.Take the example of retirement planning,the data you have gathered can help to arrive at some basic assumption.Often the initial assumption are not quite enough to obtain the goal.This where you devising alternative solutions that are in the next steps.

Step IV:Develop the plan:

Let's say you need $1 milion to reach your goal.The previous asssumptions made you about $100,000 short of your goal.If you can handle taking more market risk,you could increase your exposure to stocks in an aggressive portfolio of mutual funds to achieve your goal.

Step V:Implement the paln:

Implementing the plans means you are putting your plan to work.Although you have the plan developed,it takes discipline and desire to put it into action.

Step VI:Monitor the plan:

It is called financial planning for a reason.Plans evolves and change just like life.Once the plan is created,it is essentially a piece of history.This why the plan needs to be monitored and tweaked from time to time.