The Client Advisory Process and Wealth Planning
Know your client
The process begins with fact-finding: personal and family circumstances, employment, assets and liabilities, income and expenditure, existing arrangements, time horizon, liquidity needs, tax position, and any protection gap. Anti-money-laundering checks run alongside. Risk assessment must separate attitude to risk (willingness) from capacity for loss (ability to withstand it) - a young client with a large mortgage may have high willingness but limited capacity. A questionnaire score is evidence, not a conclusion; the adviser must test it against the client's circumstances and challenge inconsistencies.
Objectives and the investment policy statement
The investment policy statement records objectives, target return, risk parameters, time horizon, liquidity needs, tax constraints, permitted assets, benchmark and review frequency. Suitability requires a match between the recommendation and the client's circumstances; appropriateness concerns whether the client understands the product. Ongoing review keeps the plan aligned as circumstances and markets change.
Wealth planning sequences priorities: emergency reserve, protection against premature death or illness, debt management, retirement funding, then discretionary growth and estate planning (wills, trusts, powers of attorney).
Behavioural finance
Biases distort decisions: loss aversion, anchoring, herding, overconfidence, recency bias, mental accounting, confirmation bias. Advisers manage these through education, documented process and pre-commitment.
Trap: past performance and a client's stated appetite are never sufficient grounds for a recommendation.
Rule of thumb: hold three to six months of essential expenditure as a cash reserve before investing.