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I bought term life insurance from a CFP and he asked me, "do you have a financial plan?"

I didn't know how to answer him. Quite honestly, I don't have a formal, comprehensive plan written down. I was scared to engage in further conversation, because I don't want to hear the sales part of their job.


From what I understand you get these things in order:
1. Budgeting
2. Networth review
3. Risk management (insurance)
4. Estate Planning
5. Tax efficiency
6. Diversification
7. Asset allocation
8. Retirement plan

So I'm curious, do you have a written plan from a CFP? Do you value getting one or can you just do it yourself?
 

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I am a CFP and I have prepared many written plans for clients.

However, I think the generic advice to have a written plan and the scolding tone sometimes adopted by those promoting written plans can be very misplaced. ("Only x% of Canadians have a formal written financial plan...everyone should have a written plan!")

I've seen TERRIBLE written plans. Just having "a written plan" is no guarantee of ANYTHING.

If you think about it, what is "getting a formal written plan" designed to do? Off the top of my head, it would involve the person in a detailed review of their financial position in life, and have them set goals, and then explore strategies to achieve those goals - and then set out a plan of action plus review opportunities over time to see if the interim goals are being met and, if not, why not and how the plan might need to be adjusted or the goals revisited.

Some of those pieces clearly involve paperwork (i.e., asset allocation strategies) and I actually *do* think the process of developing a formal written plan can be extremely useful.

However: a poorly-developed plan, using unrealistic assumptions (whether from a advisor or if you are DIYer) may be worse than having no plan at all. Absolutely a crappy plan has no chance of improving the person's financial position, and may provide a false sense of security that worsens their position over time.

At the same time, if you are already engaged in doing the things that the written plan is designed to provide, then what's the additional benefit of having "a written plan?" (I'd put myself in this category. I maintain a lot of spreadsheets and I have a LOT of conversations and review sessions with my spouse about our finances, but I don't have a single document I could point to as my written financial plan.)

What people need (IMNSHO) is financial literacy. The written plan CAN be one measure of financial literacy - but seizing on it as the evidence of financial literacy is skipping a step.
 

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If you think about it, what is "getting a formal written plan" designed to do? Off the top of my head, it would involve the person in a detailed review of their financial position in life, and have them set goals, and then explore strategies to achieve those goals - and then set out a plan of action plus review opportunities over time to see if the interim goals are being met and, if not, why not and how the plan might need to be adjusted or the goals revisited.
Now that I am heading towards age 70, I find myself changing. I set myself the goal of writing an IPS last year, not necessarily outlining a detailed asset allocation with specific instruments, but trying to clarify where I am and where we (spouse and I) are. This has been very handy for me. We have some extra cash flow, as our retirement $$ are set, so I keep exploring different instruments. Then I look at my plan and see if they fit. It keeps me on track.

We also deal with a CFP. He was impressed with the IPS and I think it certainly helps him determine where we are beyond the generic 'retiree' phase. The IPS gives him a road map to follow when we discuss the investments held at his institution.

I also update the IPS every June. Retirement doesn't mean that nothing ever changes in your life.

So, don't wait for your CFP to write a plan for you. Do some thinking and writing yourself. You know yourself better than anyone.
 

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1. Budgeting - we have a detailed item-by-item budget that we developed 8 years ago. We tracked it for four years to understand where the money went. Now we no longer track because we know where our money goes. So we track total outflow to ensure that there are no surprises. This was a useful exercise and we learned some things about our spending and revised our patterns.
2. Networth review - We maintain a spreadsheet and update it monthly. Then quarterly, we do a "die broke" projection. This is a very worthwhile exercise and has caused us to modify the timing of major expenses.
3. Risk management (insurance)- We took some steps to rearrange our coverage 8 years ago and no further changes are contemplated. We have a TDSP to compensate for my pension income that ceases should I die first.
4. Estate Planning - This ties into #2 and also our wills. It needs to be updated and is overdue by two years.
5. Tax efficiency - We do a projection to ensure we are optimizing he tax breaks that we get each year. This is probably the most effective step we take each year.
6. Diversification - This is an ongoing effort and we are not where we want to be yet but we are approaching our goals. The lack of independence among the various markets has caused us some grief.
7. Asset allocation - We have made a major change to this in recent years owing to the uncertainty in equity markets.
8. Retirement plan - This is really the culmination of the other elements and not anything special.
 

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I don't deal with a CFP at this time. I used to have a "FP" but he was more of a salesman than anything and I'm not sure about his credentials.

As to the financial plan itself,
1. Budgeting: I don't do a real budget. I do follow my expenses closely and only spend what is left after RRSP/TFSA/Emergency Fund/Various savings have been contributed to. I try to balance savings for the future with enjoying life now, so I do budget a fair bit for travelling and a few toys.
2. Networth review: I do this approximately monthly.
3. Risk management (insurance): I'm single with no kids and I work for the federal government. So I currently do not have separate life or disability/critical illness insurance. Don't need life insurance and taking a calculated risk with the other one.
4. Estate Planning: I keep saying I need to do that, but I never quite get to it...
5. Tax efficiency: Not a whole lot I can do. Since I got rid of my FP/Mutual funds salesman, I've organized my investments in a much more tax efficient manner (for some reason, he was looking at each account separately, thus including all classes in Reg and non-reg...)
6. Diversification: Ok.
7. Asset allocation: It's now where I want it to be. Just need to keep adding (and control my urges to add more categories).
8. Retirement plan: I have a DB pension (but it won't be complete as I started a bit late), plus some RRSP/TFSA and other investments. Looking ok.

The only thing is, it's not all in one document. I have a few spreadsheets on my computer, but that's it.
 

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I bought term life insurance from a CFP and he asked me, "do you have a financial plan?"

From what I understand you get these things in order:
1. Budgeting
2. Networth review
3. Risk management (insurance)
4. Estate Planning
5. Tax efficiency
6. Diversification
7. Asset allocation
8. Retirement plan

So I'm curious, do you have a written plan from a CFP? Do you value getting one or can you just do it yourself?
I would strongly include a cash flow plan in this list. Here is a good description of the Cash Flow FP.... it stresses the entirety of the problem, not simply investments, and includes the aspect of time and (possibly) tax....Cash Flow Financial Plan

(It is a pretty short read)
 

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Two more comments:

First: I have also seen GREAT plans that didn't engage the client at all. This is like having a fantastic physical fitness workout plan that the personal trainer's client doesn't follow. What's the point? The PLAN itself is NOT the point.

Secondly: the simple qualification of having a CFP is not adequate, in my view, for the preparation of comprehensive financial plans. The CFP curriculum establishes a baseline or minimum set of qualifications for comprehensive financial planning...there's no guarantee that someone with that qualification will have the tax, or estate planning, or whatever expertise you need for your particular plan. In addition to holding the CFP or equivalent designation (the only equivalent one would be the RFP in my view), they would need to have at least several years' experience in the preparation of financial plans.

Even the way this thread started gives a red flag, IMO: the conversation about the need for a written financial plan was perceived by the OP as a sales conversation, and he (the OP) wasn't left clear about what issues having a written financial plan would provide. A great plan can only be built when there is an environment of trust and good expertise. Just having the basic knowledge chops is woefully insufficient.
 

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I would also like to mention that constructing a cash flow financial plan is best suited to DIY-ing. Whereas investment planning generally requires a professional (I said 'generally'), the cash flow plan relies on data that is part of the individual's knowledge base.... salary, projected retirement age, aggregate amounts in reg, nonreg, lira, tfsa, real estate, loans, etc. You have that info, not your financial planner.

Guessing where rates will go is just that.... guessing. Hi ball it, low ball it... OK so now you have three plans- a hi/lo/mid.

The other advantage to doing it yourself is that you can revisit it at any time (for free). Questions about when to retire, should I melt down my RRSP, pay off my loan, increase my estate goals.... don't just pop up while you are sitting with your FA... they come at you when you are just falling off to sleep.

Unless you are sleeping with your FA, it is nice to know you can simply fire up your laptop and poke in a few new numbers and 'what-if' for half an hour.

DIY is not just for budgeting and tracking expenses.
 

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Unless you are sleeping with your FA, it is nice to know you can simply fire up your laptop and poke in a few new numbers and 'what-if' for half an hour.

DIY is not just for budgeting and tracking expenses.
Yes I should add that my die-broke projections mentioned under point #2 above is really a cash flow plan. And my FP is Mr. Excel!
 

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I follow the DIY road.

1. Budgeting - useless. I pay the bills and if I want something and have cash I buy, if I dont have cash I dont buy it.

2. Networth review- also useless. My house would be included in this amount but is a house an asset or liability? Who knows and who cares. At the end of the day cash flow is all that matters unless you like to eat dry wall, my house doesnt generate cash so why worry about it? I like the house and I can afford it and it will be paid off when i retire.

3. Risk management (insurance)- single no kids, but I have 2 policies. Dont really need them but if I meet a hot mama then it will be needed.

4. Estate Planning single no kids, so everything goes up the bloodline to my parents, or my 2 sisters if they are not here. I have no problem with that.


5. Tax efficiency - this I have to look into. Do I stop RSP, and take out a loan with equivalent payments, and invest in index funds?

6. Diversification - I'm with Buffet I dont believe in it, but I do it because I buy top notch dividend growth companies that happen to be well diversified on their own.

7. Asset allocation - I have a gold plated DB plan that I dont deserve, so there is my fixed income I suppose. Even without it i would be 100% dividend growth stocks. But I guess I allocate across many industries, and also across multiple companies in an industry. This would also fall into point 6 as well.


8. Retirement plan is to quit work and live off the DB, and RSP/TFSA.
Considering I will not be outputting cash into a mortgae, RSP, and TFSA when I retire, my DB alone will be more than enough to live on. The RSP and TFSA is all gravy. Unless the hot mama is a big spender I should do alright.
 

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The only written documents I have are wills, an Investment Policy Statement (IPS) and a "black book" containing a list of all our accounts, where they are held, balances etc.

1. Budgeting: We don't do budgets. We prefer to save a targeted portion of take-home income.

2. Networth review: Once every year early in the New Year. Also I update the black book at that time.

3. Insurance: Term life for both of us.

4. Estate Planning: Wills & POAs taken care of.

5. Tax Efficiency: Most of the portfolio tax sheltered. Components that are highly taxed (bond ETFs, foreign stock ETFs) held in registered accounts.

6 & 7: Diversification & asset allocation: I track asset allocation using spreadsheets. If there is a 5% deviation, I rebalance.

8: Retirement Planning: Long way off to worry about now.
 

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i would be very interested in having some kind of template to build my own IPS.

Any of you guys willing to share ?

Could just upload a sanitized Word file to rapidshare.com or similar :)
 

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that was a good read. am sure it would help a lot of people. what i am actually in need now is a spreadsheet template to track my portfolio.

does anyone mind sharing one if they have? i guess i could use quicken or microsoft money, but i prefer a spreadsheet for customizability and portability.
 

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8: Retirement Planning: Long way off to worry about now.
Think about this for a minute. If it weren't for the biologcal imperative that our minds/bodies can't continue to be employed/work past a certain age, there would be no financial services/brokerage/insurance industry.... in fact there would be no investment industry of any kind, or certainly not to the extent it exists now.

Retirement and investing are joined at the hip..... neglect retirement at your peril. Just a thought.

Retirement Math Made Easy
 
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