The Financial Planning Process and Client Relationships
Financial planning follows a structured, cyclical process. The classic six-step model is: (1) establish and define the client relationship; (2) gather client data and goals; (3) analyse the client's financial status; (4) develop the plan; (5) implement; (6) monitor and review. The FCA's suitability requirements mean advice must be based on a fact find covering circumstances, objectives, attitude to risk, capacity for loss, and knowledge and experience.
Candidates must understand the distinction between attitude to risk (psychological willingness) and capacity for loss (ability to absorb loss without derailing goals). Both must be assessed; a client may be willing to take risk they cannot afford. Know your client (KYC) and anti-money-laundering (AML) obligations apply from onboarding.
Traps: questions that conflate risk tolerance with risk capacity; forgetting that the review step is part of the process, not optional; and assuming a fact find is a single event rather than an ongoing record. Also watch for the difference between independent and restricted advice - independence requires whole-of-market consideration and no product-provider bias.
Worked example: A 58-year-old client with a £200,000 portfolio says she is "happy to take big risks". However, she needs £50,000 in two years for a house deposit. Her attitude to risk is high, but her capacity for loss on that £50,000 is low because the goal is near-term and non-discretionary. The correct approach is to segment the portfolio: hold the deposit in low-volatility assets and invest the remainder according to her risk profile.
Rule of thumb: willingness ≠ ability; match the money to the time horizon.