Financial Planning Process and Client Relationship Management
The planning process
The AAMS planning model is a disciplined, repeating six-step cycle: establish and define the relationship; gather client data and goals; analyze the data and the financial position; develop and present recommendations; implement; and monitor. Each step produces documentation - an engagement letter, a data-gathering questionnaire, an investment policy statement (IPS), a written recommendation, and a review schedule.
Key relationship concepts: know-your-client (KYC), risk tolerance versus risk capacity, time horizon, liquidity needs, and the difference between a fiduciary standard and a suitability standard. Under Regulation Best Interest, recommendations to retail clients must be in the client's best interest, supported by care, conflict-of-interest management, disclosure, and compliance obligations.
Traps. Questions love to blur (1) risk tolerance (willingness) with risk capacity (ability) - a client with a short horizon and a large near-term cash need has low capacity even if she says she "loves risk"; (2) quantified goals with dollar amounts and dates versus vague wishes; (3) the monitoring step - many candidates forget the process is cyclical and that the IPS must be revisited when goals, markets, or the client's life change.
Rule of thumb. Emergency reserves of three to six months of living expenses sit outside the investment portfolio, and the Rule of 72 estimates doubling time: 72 ÷ annual return = years to double. At 6%, money doubles in roughly 12 years.