Fundamental Financial Planning Interview Guide

Fundamental Financial Planning Interview Guide Money Tree Software developed this fundamental guide for use with Silver Financial Planner and similar financial planning applications. For both you and your client s comfort, it pays to plan out your initial financial interview in advance. Having a starting agenda and knowing some of the questions you will ask can reduce the time it takes to collect financial data and leaves you more time to talk about clients values, wants and needs. Some people are unaccustomed to talking about finances. Having an organized interview plan goes a long way in projecting a professional attitude that can help put people at ease. Use your judgment; the point is to get the most complete financial information and evaluation you can while getting to know your client. These guidelines apply to all interviews. You can use, modify, or eliminate any of the questions illustrated in this guide. The point is to quickly and painlessly collect enough information to create a representative model of the client s present and future financial position. With financial planning results in hand you can discuss specific details of client s financial issues, options, and the decisions they need to consider based on their report. The interview question examples in this guide represent just one side of a conversation, and do not include answers or follow up questions. The interviewer should use their own conversational style to gather the needed information while getting to know the clients feelings about money and investments. Note that the interview process is divided into two parts. In the first part, the information gathering stage, you obtain information about the client. In the second stage, you let the client know about the analysis you ve made, and help them decide on necessary actions. Conducting the Interview There are distinct parts to an interview, and each of them is important. To make sure that you cover all the bases in your interview, use this outline as a guide: Establish rapport and set some goals. Greet the client with a pleasant smile, firm handshake, and a casual statement or two. Outline the interview objectives and structure. For example, say, "In the time we have today, I would like to..." Put yourself on the same side of the table as the client. Make this a team effort; verbalize that you re working with the client to meet their objectives. When talking use we, as in With your answers we can build and review Gather information. Ask for specific information about client finances and budget. Be certain to use open-ended questions (how, what, when, etc.), and always try to follow up a yes or no answer with an open-ended question. Give information about the analysis and even "sell" the report. Be sure to do this after you've obtained the answers to your interview questions. If you tell the applicants exactly what you're looking for first, they can adapt their answers to fit what they perceive as your needs. Close the interview. Thank the client for his or her time and interest. Indicate what the next step will be and the time frame within which it will occur. If appropriate, schedule an appointment time. Financial Planning Interview Guide 9/1/2011 Page 1 of 8

Financial Planning Interview Introduction When the client arrives for your meeting, make an effort to establish rapport and put him or her at ease using a friendly, businesslike attitude. Introduce yourself. Let the applicant know that you're glad that they've come, that you respect the value of their time, and that you have set aside sufficient uninterrupted time to conduct the interview. Help the client understand that they have your full attention, and that you are there to answer their questions and meet their needs. Hello Mike. Nice to see you, glad to meet you. I m happy we could get together today. I know you re busy, so I ll try and make sure we get this all done quickly and so we can get you the information you need. I ve got plenty of time today, so as we go along, stop me if you have questions. I m here to help you make sense of the details as well as the big picture here, so let me know anytime something s not making sense. You can start the interview with chatter about hobbies, interests, etc., if you are comfortable doing so. It sets clients at ease, and get them used to answering questions. Have you taken a vacation this summer? What did you do? / What are doing? Or you can simply ask one of the following open-ended financial questions: "How did you happen to become interested in this financial planning analysis?" "How did you hear of the planning report? Oh yeah, how did they like theirs? What do you hope to learn or accomplish as a result of this planning process? What are you looking for from this planning report?" Depending on the response you receive, you can work in an overview of what you have planned for the meeting. This briefly states what you want to achieve in the meeting. "Before we start, let me give you some idea of what we might try and cover today. We ll want to review your finances, financial experiences, and your retirement objectives. With this information we can make a report to help us see where you are financially, help you understand some of the options you have, and help us set a path that will let you meet your retirement objectives. Begin by asking the basic questions. As you collect information, listen for clues about additional questions you may need to ask. If you ask how many children the client has, and they say two so far, you may want to ask about what they mean. Lets start with a couple basic questions. Is this how you spell your name? How old are you? Birth date? Are you married? What is your spouse s name? Do I have that spelled right? Birth date? Do you have children? How many? What are their names? What are their ages? At what age do you plan on retiring, or slowing down? At what age does your spouse plan on retiring? Financial Planning Interview Guide 9/1/2011 Page 2 of 8

Personal Assets and Debts Using the application input system as a guide, inquire about major assets such as house, car, boat, RV, et cetera. As you get the values for each, make a note of the description. Make sure you are getting the client s best estimate of the actual current value, not the price they paid a few years ago, or the optimistic price they hope to get in a few years. Well Mike, let s talk about your personal assets. I mean things like house, furnishing, cars, boat, and vacation property Things like that. Do you have a house? What do you estimate its current market value might be right now? What about your personal property inside, like furniture, appliances, art, tools, clothes and stuff? People often have a hard time estimating the current value of their personal household property. You may need to prompt or suggest a value to use as a placeholder. If someone is not sure about the value, and really has no good guess, suggest a representative number to use in the analysis. The actual value is not used anywhere except in the net worth summary, so a rough approximation is quite sufficient. Mike, I understand it s hard to know the value of your personal household property. Let s, for sake of argument, just put down $20,000 for now. It s a reasonable guess; we re really just looking for an approximation here. How s that sound? Too high, too low, OK? If the client lives in an apartment, or rents a house, an initial guess of $10,000 may be appropriate. If they own their home, an initial suggestion of $20,000 may be reasonable. Let the client adjust any number you suggest until they feel comfortable with the number. Continue on to discuss cars and other vehicles. These are often hard to value, so help by suggesting what you re looking for as far as fair current market value. Let s see, how about cars? Boats? RVs? Planes? We re looking for current value, what the car might be worth if you were going to buy it from, or sell it to a private party. After you have listed short descriptions and values for vehicles, ask about other assets. Make some suggestions of what you mean. After they have given you the assets, probe a little more to make sure they have included everything. How about other things or property you own; vacation homes, land, art, coin collections? Do you own part of anything, like a shared interest in a family cabin? Collecting information on the debt side is very much the same as assets. Inquire about the remaining balance and years left on the mortgage if they have a house, ask about the average credit card debt they carry, ask about department store debt, and see if they have any loans on vehicles. Again, try and explain that it s the current amount due, not the original amount. Often people won t remember exactly how much they still owe, so work to obtain a good approximation. Probe for any other loans or debts they may have such as student loans. Now on the debt side, how much do you still owe on your mortgage? What is the average balance on your credit cards? Any other credit cards; Sears, Nordstrom s, Chevron? How much do you still owe on your car? Any other debts? Student loans? Anything else? Financial Planning Interview Guide 9/1/2011 Page 3 of 8

Income, Miscellaneous Income and Monthly Payments To get a full picture of the client s finances, we need to find out the amount of their primary work income, other miscellaneous income and issues affecting their employment. In order to gauge the client s debt load, we want to collect some information about items they pay monthly. All this information is somewhat sensitive for many people, so it may help to explain the reason for the questions while you are asking for the information. Mike, what s your gross income from your position at work? What I mean is, what s your total annual income amount before any taxes or retirement plan deductions. This will give us a way to estimate your social security benefits, and calculate some other numbers in the report. Do you have any other incomes like part time work, rental income or anything? About how much per month? And how about your wife? What is her total gross income before taxes, contributions, or other deductions? Does she have any part time work or other monthly incomes? Let s go over some of your monthly budget figures Mike. This gives us a way to help you gauge your borrowing potential. What s your monthly mortgage payment or rent payment? The mortgage amount we want to use is just the principal and interest, not any insurance they sometimes add to the amount. What s your normal credit card payment amount? Any auto loan payments Mike? Any other monthly payments you have to make; student loans, child support, alimony, et cetera? You may want to restate the information you get back to the client just to double-check the numbers and at the same time validate that the client understood the gross income concept. Expenses There are four expense items that need to be discussed and ultimately estimated by the client with your assistance. Help the client understand that these numbers do not need to be exact; good approximations are acceptable for our purposes. Current annual expenses: Current annual expenses are pretty clear, these are all the costs that clients now incur to maintain their existing lifestyle. If you take the amount of take home pay and reduce it for savings you pretty much arrive at current expenses. Mike lets talk a little bit about your living expenses. About how much per month you spend on everything? We re looking for the total of your mortgage (or rent), car payment, insurance, food, gas, movies, coffee and everything. You might say it s your household take home pay, less your savings. Current survivor expenses: These are the expenses necessary to maintain the household in the event of a death. In many cases current survivor expenses would be exactly the same as current annual expenses; it would take the same amount of money to maintain the household. In other cases current survivor expenses might decrease or even increase. Consider reduction in car payments, cleaning bills and entertainment expenses. On the other hand, consider the costs associated with daycare, housekeeping, etc. in the event of the death of a homemaker. Financial Planning Interview Guide 9/1/2011 Page 4 of 8

I know it s not something you ve probably thought about, but if something were to happen to you or your wife what would it cost to run and maintain the household? Would the surviving spouse be able to reduce household living expenses, or would they pretty much stay the same? Do you think you would need to hire someone to help out with childcare or housekeeping? Estimated retirement expense: This is the amount required by the client to maintain their planned retirement lifestyle. Many clients expect retirement living will be less expensive than their current lifestyle. That may be true if they have paid the mortgage and expect to reduce commuting, wardrobe, and other work related costs. In many cases however, retirement expenses will approach, or exceed, their current annual expenses due to health and long-term care insurance, prescriptions, travel and other costs associated with the retirement life phase. What are your expectations for your household expenses in retirement? How will retirement affect your spending habits? Are there expenses that you will eliminate when you retire? Will your health care be paid for? Estimated retirement survivor expenses: Late in retirement, when the first individual of a couple passes on, what will it cost to maintain the other s lifestyle. Expenses for one individual can sometimes be somewhat lower due to reduced day-to-day costs, healthcare expenses for one, and reduced prescription costs. The retirement expenses for a couple may change when the first person passes away. For our estimation purposes, we can start with retirement expenses and go from there. Let s assume for planning purposes that costs stay the same, is that reasonable? Education Expenses and other Special Issues There are some areas of client s financial lives that may be difficult to model, may be unpredictable, or a little unknown. These special issues are best represented simply, and in a way that allows discussion, but is clearly understood that the values themselves are estimates. Education Costs are one area that may be estimated, guessed at, but are rather unknown. To begin with, it s hard to know what school a child will decide to attend, it can be hard to estimate what financial aid may be available, and it is very hard to predict how many years it will take a student to graduate. Knowing these variables exist, it s still worthwhile to make some educated guesses. Education costs can be calculated but not included in the retirement projection, there is an option on the input page to include or exclude education expenses. Mike, lets talk about your child s education plans. Do you expect her to go to college? Do you have any guess as to the kind of school she might attend? Oh, you ve talked about her going to that nice little college up state, very nice. Have you thought about how much of her college costs you plan to pay? Well, lets assume that the college costs are $25,000 per year today. That includes tuition, books, housing, dining, entertainment, and travel. You may be able to expect $4,000-$5,000 of financial aid from the school. That leaves $20,000 per year for 4 or 5 years. Let s estimate five years to see the results in the illustration. We can t really know if she ll go to that school, get that assistance, or go all five years, but this will give us some numbers to consider and talk about. Financial Planning Interview Guide 9/1/2011 Page 5 of 8

Major Expenses are, like education, future costs for which clients would like plan. These might be things such as saving a down payment or the full cost of a house, boat or car. Perhaps it s saving enough money to start a business. The illustration gives the client and planner some numbers to discuss such as monthly or yearly savings amounts required to meet the objective. Also like education, Major Expenses can be calculated but not included in the retirement projection. An option is on the input page to include or exclude Major Expenses. Mike, are there any other financial objectives you re saving money to achieve? You re saving up the down payment for a boat? How much is that? You figure the down payment is about $5,000, and you want it in two years. What is the price inflation rate on boats? We can put some information in, and we ll have some numbers to consider and talk about. The Special Expenses and Special Incomes parts of the planning system allows for very flexible modeling for all kinds of expense and income patterns. Clients may or may not have an understanding of what these planning issues are. You may need to carefully listen to the client and recognize that they may talk about a little consulting income for a few years after they retire, but what they are really saying is Special Income. They may say, when we retire, we want to take a full six months and travel around the world, but they really mean we are going to have a major one year Special Expense the year we retire. Are there other future expenses or incomes that we might want to consider as we look into your financial future? Do you have any plans for big expenses, big purchases, or significant costs? How about incomes? Do you expect any balloon payments or inheritances? Do you expect to do any work or consulting after you retire? Pension and Social Security Clients may have just a general idea about their retirement benefits from a pension. It can be very valuable to review the actual specifics of the pension calculations with them. Sometimes their expectations of the pension benefits don t match the calculations reality, but it s better for the client to have a valid estimate than to be surprised just when they are ready to retire. Mike, will you or your wife get pension benefits from your current employer, the military or some previous employer? Oh, you ll get a government pension. Nice. Well let s get your start date and I make a working estimate for us. These pension numbers will be based upon some assumptions, but should help us understand the general picture of the benefit. Clients participating in Social Security have some basic choices they will need to make. Not everyone who retires starts taking Social Security benefits right away. Most people eligible for Social Security benefits can start taking reduced benefits as early as age 62. Waiting to get benefits until 65, 66, or 67 will increase the amount of monthly benefit. The client should understand the tradeoff of getting smaller benefits earlier versus getting larger benefits later. Have you given any thought as to when you want to start taking Social Security benefits? You know that according to Social Security your full retirement age is 67. You ve said you and your wife plan on retiring before that age. If you start taking Social Security benefits at that age, you ll get a lower benefit every month, and once that reduction is made, it s permanent. Some professional think it s Financial Planning Interview Guide 9/1/2011 Page 6 of 8

still the best way to go, because once you retire the smaller benefit now is better than a bigger benefit later. Investment Assets Obtaining all the information about the client s financial investments can be a little daunting. If you approach the task with the understanding that you really only need the general picture, you ll be able to get the information you need quickly and in enough detail to offer the client a good representation of their retirement picture. Work to obtain account and asset values that are representative. It s not necessary to get the latest, exact dollar amount in each and every asset. Some of the accounts values fluctuate, some have regular monthly addition amounts, and some values are just going to be guesses by the client. As long as you and the client know that the actual numbers are reasonable best estimates, the results will be useful for discussion purposes. The same thing is true of the investment description. The client may know that they have $30,000 in some stock mutual, but they may not know if it s a balanced fund, growth fund, small cap fund or aggressive growth fund. For the first interview, help them make a reasonable guess. The results will be valuable, and the client will better understand the questions they need to be asking. Let s go ahead and get make a full list of all your assets. We can begin with your checking and savings Do you have any CDs? Any other bank type assets? Ok, lets see, do you have assets in a brokerage account or mutual funds? Are they taxable? Any bonds, municipal bonds or bond funds? Do you or your wife have an IRA or Roth IRA? Do you have a 401(k), 403(b), 451 or any other retirement plan at your current employer? How about your wife? Ok, we ve got the totals, lets talk about the individual investments you have in the accounts. We don t have to go into great detail, but lets at least look at how your investments are spread out for stability and diversification. Gauge Financial Confidence, Investment Attitude and Experience, Risk Tolerance As the interview progresses it will often become apparent just how comfortable the client is when talking about their money. Asking direct questions about the client s experience and feelings will give the client an opportunity to directly express their thoughts and concerns. Good planning requires allowance for the human element. Well-planned investment strategies will not work over time if the client can t sleep at night, or won t even start the implementation process. Ask some open-ended questions about the client s feeling, beliefs and ideas regarding money, opportunity and risk. Quietly listen. Draw them out. Explore issues they bring up in their answers. Making sure clients really understand their own place in the investment world can be an important step in the process of helping them comfortably and rationally manage their retirement investments for the long term. I want to get an idea about your attitudes regarding money and investments. A good place to start would be your investment experience. I'm interested in how long you ve been investing, the investments you've held, what your expectations were, and what you thought of the results. What have you liked and disliked about your investments. How would you describe yourself as an investor? What s been your best investment? What s been your worst investment?" Once you have a good understanding of the client s attitude, have them help you choose a one-word description: conservative, moderately conservative, moderate or aggressive. Financial Planning Interview Guide 9/1/2011 Page 7 of 8

Insurance Collecting insurance information is straightforward. You may need to prod and prompt to help remind clients where insurance policies may exist. The actual detail about the policy type is not critical. It is important however to differentiate between term policies which will likely end at or prior to retirement and permanent insurance policies which will continue in force through the retirement years. Mike, do you have term insurance? You might get it through work. Do you know how much? How about your wife, does she have some? How about other insurance, do you know your coverage? Do you know if it whole life, universal or variable? Rate and Tax Assumptions You need to explain the Investment returns & Tax Rate assumptions you are going to use in the projections and report. It s not necessary to explain each assumption, but you should make a concerted effort to explain that the assumptions are not expectations or guarantees. The assumptions are just some reasonable averages based upon what has happened to other people in the past. Their results may not match the assumptions, the future rarely repeats the past, and our crystal ball is in the shop all this week. Mike, as I work on this report for you, I ll be using some estimates for things line interest, investment growth and tax rates. These estimates are really just our best guess of what will happen in the future based upon what has happened in the past. These numbers are not any kind of guarantee or promise. These are just some representative assumptions that we will use to discuss what we think the future might hold. Discussion It s valuable to let the client ask question at the end of the interview. This is also a time when client often bring up issues, assets, debts, problems and questions that didn t come up in the course of the interview. This is also a good time to give them some of your impressions and initial analysis. Getting some of the good or bad news early can often reduce the stress or pressure people experience when evaluating their retirement plans. "Well Mike, I think I ve got most everything I need here to put together a pretty good picture of where you are, and where things are headed. Do you have any other comments or questions? Did I leave anything out, anything we forgot? No? Ok. My first impression Mike is that you ve done a good job preparing for retirement, and it seems that you ve got pretty reasonable retirement expectations. I ll put together a report so we can discuss some of the details and we can review where to go from here. Conclusion Let the applicant know what's likely to happen next, whether another interview will be needed, when you will have a finished report to discuss with them. "Let me review what the next steps are. "I want to thank you for coming today. Financial Planning Interview Guide 9/1/2011 Page 8 of 8