The financial planning process and goal-based investing
Understand the client, analyse, plan, implement, review: one goal at a time.
The financial planning process is the sequence an adviser follows to turn a client's goals into a written, funded plan: understand the client, gather the numbers, analyse the position, recommend, implement, and review. Each step feeds the next, and the review sends you back to the start.
Goal-based investing is the same process applied one goal at a time. Instead of one pot of money chasing the highest return, each goal (a child's education, a home, retirement) gets its own amount, date and matching investments.
The six steps
- 1
1. Establish the relationship
Agree the scope of the engagement, what the adviser will and will not do, the fee, and each side's responsibilities.
- 2
2. Gather client data and goals
Income, expenses, assets, debts, insurance, dependants, and goals stated with an amount and a date. Assess risk appetite and capacity for loss.
- 3
3. Analyse the current position
Build a cash flow statement and a personal balance sheet. Check the emergency fund, debt load and insurance gaps before any investment advice.
- 4
4. Develop and present the plan
Recommend actions for each goal: how much to save, in what asset mix, with what protection. The advice must suit the client's risk profile.
- 5
5. Implement
Put the plan into action: open accounts, start investments, buy cover, restructure loans. The client decides; the adviser executes only what is agreed.
- 6
6. Monitor and review
Track progress against each goal, rebalance, and revise the plan when income, family or goals change.
Goal-based investing: a worked example
Illustrative numbers; the inflation and return figures are assumptions, not forecasts. Neha and Sameer, both 32, list three goals.
Car replacement
Cost today
₹8,00,000
Years away
3
Cost at 6% inflation
About ₹9.5 lakh
Typical asset mix by horizon
Mostly debt and deposits
Daughter's higher education
Cost today
₹20,00,000
Years away
15
Cost at 6% inflation
About ₹47.9 lakh
Typical asset mix by horizon
Mostly equity, moving to debt in the final years
Retirement
Cost today
₹6,00,000 a year of expenses
Years away
28
Cost at 6% inflation
About ₹30.7 lakh a year
Typical asset mix by horizon
Equity-heavy now, shifting with age
| Goal | Cost today | Years away | Cost at 6% inflation | Typical asset mix by horizon |
|---|---|---|---|---|
| Car replacement | ₹8,00,000 | 3 | About ₹9.5 lakh | Mostly debt and deposits |
| Daughter's higher education | ₹20,00,000 | 15 | About ₹47.9 lakh | Mostly equity, moving to debt in the final years |
| Retirement | ₹6,00,000 a year of expenses | 28 | About ₹30.7 lakh a year | Equity-heavy now, shifting with age |
Free account, this exam preselected.
What the IA Regulations add
For a SEBI-registered investment adviser the process is not optional good practice. The IA Regulations require the adviser to collect client information, assess the risk the client is willing and able to take, share the risk profile with the client, and ensure every investment advised is suitable for that profile, with records kept of each step.
How X-A tests this
The process is item E of Chapter 1 in the X-A curriculum, and the caselets are built on it. The paper is 150 marks with a pass at 90 out of 150 (60%). Expect sequence questions (which step comes before which), and scenarios asking what the adviser should do next.
The traps: recommending a product before the data-gathering or analysis step, skipping the emergency fund and insurance check, and treating the client's stated risk appetite as the whole risk profile when their capacity for loss is lower.
FAQs
What are the steps in the financial planning process?expand_more
Establish the relationship, gather data and goals, analyse the current position, develop and present the plan, implement it, and monitor and review it.
What is goal-based investing?expand_more
Investing separately for each goal, with a target amount, a date and an asset mix that fits how far away the goal is, instead of chasing returns on one combined portfolio.
Why is the review step needed?expand_more
Incomes, families, markets and goals change. Without review, the plan drifts away from the client's real situation and the asset mix drifts from its target.
Is risk profiling part of financial planning?expand_more
Yes. It sits in the data-gathering step, and SEBI requires registered investment advisers to do it and to keep advice suitable to the profile.
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