The Seven-Step Financial Planning Process

The CFP Board defines financial planning as a collaborative process that helps maximize a client's potential for meeting life goals through financial advice that integrates relevant elements of the client's personal and financial circumstances.

As part of the CFP Board's Code of Ethics and Standards of Conduct, CFP professionals must follow a structured seven-step process when providing financial planning services. This process replaced the previous six-step model (known by the acronym EGADIM) and now follows the CGADPIM framework.

Why the Seven Steps Matter

The financial planning process serves multiple purposes:

• Structure: Provides a systematic approach to comprehensive planning
• Compliance: Ensures CFP professionals meet their ethical and fiduciary obligations
• Documentation: Creates a clear record of the planning relationship
• Quality: Helps deliver consistent, high-quality advice to clients

Exam Tip: The CFP exam frequently tests your ability to identify which step you are in based on a scenario. A helpful mnemonic is "Uber Is A Drunk Person's Immediate Motor vehicle" - Understanding, Identifying, Analyzing, Developing, Presenting, Implementing, Monitoring.

Overview of the Seven Steps

Step 1: Understanding the Client's Personal and Financial Circumstances (C.1)

The process begins with gathering comprehensive information about who the client is and what they want to achieve. This includes both quantitative (objective) and qualitative (subjective) information.

Quantitative data includes:

• Age, income, expenses, and cash flow
• Assets, liabilities, and net worth
• Insurance coverage and employee benefits
• Tax information and estate plans
• Retirement accounts and benefits

Qualitative data includes:

• Health and life expectancy
• Family circumstances and values
• Risk tolerance and attitudes toward money
• Goals, needs, and priorities
• Current course of action and expectations

The CFP professional must analyze this information to assess the client's circumstances before moving to goal-setting. If complete information cannot be obtained, the planner must either narrow the engagement scope or terminate the relationship.

Step 2: Identifying and Selecting Goals (C.2)

Using the information gathered in Step 1, the planner helps the client identify potential goals and prioritize them. This step involves:

• Identifying potential goals based on circumstances
• Discussing your assessment of the client's situation
• Developing reasonable assumptions and estimates
• Selecting and prioritizing goals
• Noting the impact that particular goals have on other goals
• Discussing any goals that may be unrealistic

Goals should follow the SMART framework:

• Specific: Clearly defined objectives
• Measurable: Quantifiable targets
• Achievable: Realistic given resources
• Relevant: Aligned with client values
• Time-bound: With defined timelines

Step 3: Analyzing the Client's Current Course of Action (C.3)

This step evaluates whether the client's current strategies move them toward their goals. The CFP professional:

• Analyzes the current course of action
• Identifies material advantages and disadvantages
• Develops potential alternative courses of action

Important: An alternative course of action does not become a recommendation until the CFP professional formally selects it in Step 4. This distinction is frequently tested on the exam.

Step 4: Developing the Financial Planning Recommendations (C.4)

The CFP professional selects one or more recommendations designed to maximize the potential for meeting the client's goals. Each recommendation should consider:

• The assumptions and estimates used in analysis
• The basis for making the recommendation
• The timing and priority of implementation
• Whether the recommendation is independent or must be implemented with another

A recommendation may include continuing the current course of action if it remains appropriate. Recommendations must be consistent with the mutually defined scope of engagement, client goals, quantitative data, and personal/economic assumptions.

Step 5: Presenting the Financial Planning Recommendations (C.5)

The planner presents the selected recommendations along with the information considered in developing them. This presentation should:

• Explain the advantages and disadvantages of the current plan
• Present alternative options considered
• Be tailored to the client's comprehension level
• Disclose any conflicts of interest
• Consider clients with visual or hearing impairments

Recommendations may be presented orally, in writing, in person, over the phone, or in another format that fits the client's needs. The complexity of recommendations should guide the presentation format.

Step 6: Implementing Financial Planning Recommendations (C.6)

Implementation brings the plan to life. This step must be completed unless specifically excluded from the scope of engagement. The CFP professional must:

• Establish responsibilities for the client, planner, and third parties (CPAs, attorneys, insurance agents)
• Set timelines and priorities for each action
• Select appropriate products and services consistent with client goals
• Investigate products or services that reasonably address client needs

Key Point: The client is solely responsible for accepting or rejecting recommendations. Once accepted, the planner assists with implementation using an implementation timeline.

Step 7: Monitoring Progress and Updating (C.7)

The final phase may last years or decades. This step must also be completed unless specifically excluded. The CFP professional:

• Establishes monitoring and updating responsibilities
• Determines how and when reviews will occur
• Monitors the client's progress toward goals
• Obtains current qualitative and quantitative information
• Updates goals, recommendations, or implementation decisions
• Verifies the engagement terms remain current

Types of Reviews

Exam Tip: Investment performance should be communicated at least quarterly, with more frequent communication during periods of extreme volatility. Use performance benchmarks at least annually.

CFP Professional Responsibilities

A CFP professional is responsible for all seven steps of the financial planning process unless specific steps are explicitly excluded from the scope of engagement. This includes:

• Implementation of recommendations
• Ongoing monitoring and updating
• Documentation of all client interactions

Documentation Requirements: CFP professionals must prudently document information as facts and circumstances require, using CRM software, handwritten notes, or email correspondence.

Integration Factors

The CFP Board considers several "integration factors" when determining whether financial planning is required:

1. The number of relevant elements of the client's circumstances affected
2. The portion and amount of the client's financial assets involved
3. The length of time the client's circumstances may be affected
4. The effect on the client's overall exposure to risk
5. The barriers to modifying the actions taken to implement (such as surrender charges)

When Financial Planning Applies

Financial Planning applies when a CFP professional provides Financial Advice that integrates relevant elements of the client's personal and financial circumstances. Not every client interaction requires the full seven-step process, but when it does apply, the CFP professional must follow the Practice Standards.