Financial planning process

The financial planning process assists your Commonwealth Financial Planner to understand your current financial situation and to develop a tailored financial plan to meet your objectives.

Establishing your financial objectives

Your financial objectives are largely determined by your stage in life, the length of time you have to invest and any personal investment preferences you have. Financial objectives are usually divided into the following categories:

• Short term (0–2 years), e.g. a new car
• Medium term (2–5 years), e.g. an overseas trip
• Long term (5 years or more), e.g. major home renovations or retirement

 

Determining your risk profile

Once you've clarified your financial objectives, the next step is to determine what type of investor you are. This is called developing your risk profile. Your risk profile is largely determined by two important elements:

• Your time horizon: the amount of time you have available to invest before you need to use your money, i.e. whether your financial objectives are short, medium or long term
• Your relationship to risk and return: generally, investments that produce high returns are those with higher levels of risk. In this context, risk means variability of returns or the potential for loss of capital. An additional way to view risk is to think of it as the possibility that you may not meet your investment goals. Typically, the longer your time horizon, the more risk you can afford to take

 

Overall, you need to balance the amount of investment risk you feel comfortable with against the returns you need to earn so as to achieve your objectives within your time horizon.

Determining your personal investment strategy and financial plan

Once you and your financial planner have worked out your risk profile, your planner will advise you on which types of investments best suit your needs. There are two main categories of investment:

• Defensive assets:  protect your savings from a significant loss in value, but generally earn a lower rate of return. They include bonds and cash deposits
• Growth assets: have historically earned higher rates of return, but also carry higher risks. They include shares and property investments

 

Most financial plans contain a mix of these two categories. The proportion of each is determined by your financial objectives and investor profile.

Other issues that are taken into account when developing your financial plan include:

• Income needs: do you need investments that pay income on a regular basis?
• Liquidity: do you need investments that remain accessible at short notice?
• Social security: do you expect to receive the age pension soon? Are you concerned about how your investments could affect how much pension you receive?
• Tax: do you need your investment strategy to be particularly tax effective?
• Capital growth: is building wealth for the future your most important objective?
• Wealth protection: are your assets (including yourself and your ability to earn an income) suitably protected against adverse circumstances?

 

Your Commonwealth Financial Planner will consider all of these issues when developing your financial plan. Proceeding to this financial plan stage involves a cost which will be provided to you at your initial meeting.

Going through your financial plan

Your Commonwealth Financial Planner will give you a copy of your financial plan which will outline your financial goals and objectives, and the recommended investment strategy. Your planner will also explain any fees or commissions that would be payable if you proceed with any of the recommended investments and give you a copy of all necessary documents for any product that is being recommended.

You are under no obligation to follow your financial planner's advice or to invest in the recommended investments. It is important to ask all the questions you have and make sure you fully understand everything contained in your financial plan before you proceed.

Implementing your plan

When you're ready to put your financial plan into action, your Commonwealth Financial Planner will assist you with the process of implementing the investment and insurance recommendations. This includes the completion of application forms to establish any investment and insurance policies.

Keeping your plan on track

Having a financial plan is one of the best ways to achieve your retirement objectives, but it is only the first step in the journey. Along the way, your personal circumstances will probably alter (e.g. birth of a baby, marriage or divorce, inheritance, big salary increase or redundancy), your goals may change (e.g. you want to retire earlier or later) and external factors could affect your investments (e.g. changes in legislation). Regularly updating your plan over time is very important. We have designed an Ongoing Service Program to do just that.

As part of this fee-based program, your Commonwealth Financial Planner will track the performance of your investments, compare progress against your objectives and explain how broader factors may impact your plan. Armed with this information, you'll be able to make informed decisions about whether any changes are required.

These are some of the other benefits of being an Ongoing Service client:

• An annual review meeting with your financial planner to revisit your objectives and discuss any changes
• Regular contact and ongoing support from your financial planner
• Market updates and information on new or improved financial solutions
• Explanations of legislation changes, taxation and the economic environment
• Advice on budgeting, debt management, estate planning and insurance issues
• Invitations to exclusive market update and lifestyle briefings once a year
• An educational/lifestyle newsletter twice a year

 

To make an obligation-free appointment with a Commonwealth Financial Planner, call 1800 241 996 or email us.

 

Important information. The information contained on this web page is of a factual nature only and is not intended to constitute financial product advice. It has been prepared by Commonwealth Financial Planning Limited without considering your individual objectives, financial situation or needs. You should consider its appropriateness in light of your circumstances and consider seeking professional advice relevant to your individual needs before making a decision based on this information.

Commonwealth Bank customers who wish to obtain information about Retirement Planning may do so by contacting a Commonwealth Financial Planner. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139. Commonwealth Financial Planning Limited is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124