NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Personal Financial Planning

Financial Planning Concept and Six-Step Process

Updated 11 October 2026 · Fact-checked

Personal financial planning is a structured way to help a client reach life goals using their income, assets, liabilities and risk capacity. The standard process has six steps: establish the client relationship, gather data and goals, analyse the client's position, develop and present recommendations, implement them, and monitor and review the plan.

Understand Financial Planning Concept and Process

Personal financial planning is the process of working out how a person can meet life goals through proper management of money. Goals can be buying a house, funding a child's education, or retiring comfortably. The plan looks at the whole picture, not just one product.

A plan is built around the client, not around a product. It uses the client's income, expenses, assets, liabilities, insurance, tax position, risk tolerance and time horizon. A good plan is holistic: it joins investing, insurance, tax, retirement and estate matters together.

The benefits are clear. The client gets clarity on goals, a disciplined way to save, better use of money, protection against risks, and a basis to measure progress. The adviser gets a documented, suitable and defensible basis for advice.

The process is a cycle of six steps:

Step 1: Establish and define the client-planner relationship. Explain services, roles, scope, fees and responsibilities. Agree how you will work together.
Step 2: Gather client data and determine goals and expectations. Collect financial and personal information, and clarify goals, time frames and risk attitude.
Step 3: Analyse and evaluate the client's financial status. Study net worth, cash flow, insurance, risk profile and the gap between where the client is and where they want to be.
Step 4: Develop and present the financial plan. Give recommendations that fit the analysis and explain the reasons and trade-offs.
Step 5: Implement the plan. Put the recommendations into action, such as buying products or opening accounts, with the client's consent.
Step 6: Monitor and review the plan. Track progress and revisit the plan when the client's life, goals or markets change.

The order matters. You cannot recommend before you analyse, and you cannot analyse before you have data. Step 6 loops back to the earlier steps, so planning never really ends.

Key formulas to remember

Six-step financial planning process: Establish relationship → Gather data and goals → Analyse status → Develop and present plan → Implement → Monitor and review; Learn the order. Exam questions often ask which step comes first, next or last, or where an activity belongs.
Where common activities fall: Scope, roles, fees → Step 1 | Fact-finding, goals, risk attitude → Step 2 | Net worth, cash flow, gap analysis → Step 3 | Recommendations → Step 4 | Execution → Step 5 | Review → Step 6; Use this mapping to place any activity in the correct step.

How to solve Financial Planning Concept and Process questions

Most questions ask you to place an activity in the right step, put steps in order, or judge whether an adviser's action is appropriate. Use the same method each time.

1Read the question and underline the activity being described.
2Ask what the adviser is doing: explaining terms, collecting information, analysing, recommending, executing or reviewing.
3Match the activity to the step using the mapping: relationship, data and goals, analysis, plan, implementation, monitoring.
4If the question asks for order, remember that data and goals come before analysis, and analysis comes before recommendations.
5Check for a trap: a recommendation made before data is collected, or a product pushed before goals are known, is wrong.
6Pick the option that keeps the client's goals and suitability at the centre.

Quickest way: Verb-matching shortcut

When to use it: Use when a question gives an activity and asks which step it belongs to, with little time to spare.

Spot the key verb: explain, collect, analyse, recommend, execute, review.
Map it: explain → Step 1, collect → Step 2, analyse → Step 3, recommend → Step 4, execute → Step 5, review → Step 6.
Eliminate options where the order is reversed or the plan is made before data is gathered.
Choose the remaining option.

Common mistakes in Financial Planning Concept and Process

Placing goal setting in Step 1.
Goals feel like the start of everything.
Fix: Step 1 is about the relationship and scope of service. Goals and expectations are determined in Step 2, along with data gathering.
Treating analysis and recommendation as the same step.
Both involve the adviser's judgement.
Fix: Analysis (Step 3) assesses the client's current position. Recommendations are developed and presented in Step 4.
Thinking the process ends after implementation.
Buying the products feels like the finish.
Fix: Step 6 is monitoring and review. The plan is revisited when circumstances, goals or markets change.
Confusing financial planning with product selling.
Daily work often involves products.
Fix: Planning starts with the client's goals and full financial picture. Products are only a means to reach those goals.
Assuming a plan covers only investments.
The exam is about securities, so the scope seems narrow.
Fix: A plan is holistic and also covers cash flow, insurance, tax, retirement and estate matters.

Worked examples

Example 1

An adviser meets a new client and explains the services offered, the adviser's responsibilities and how fees will be charged. Which step of the financial planning process is this?

Show the solution

Identify the activity: explaining services, responsibilities and fees.
These define the scope and terms of working together.
That is the work of establishing the client-planner relationship.
No data is being collected and no analysis or recommendation is made yet.

Answer: Step 1: Establishing and defining the client-planner relationship.

Example 2

After collecting a client's income, expenses, assets and goals, an adviser calculates the client's net worth and finds a shortfall against the retirement goal. Which step is this, and what usually follows?

Show the solution

The data collection is already done, so this is not Step 2.
Calculating net worth and identifying a shortfall is analysing and evaluating the client's financial status.
This is Step 3.
Once the gap is understood, the adviser develops and presents recommendations to close it, which is Step 4.

Answer: Step 3, analysis and evaluation of the client's financial status. Step 4, developing and presenting the plan, follows.

Exam tips

Memorise the six steps in order and the key verb for each. Order questions are common.
Watch for options that jump to recommendations before data gathering and analysis. These are usually traps.
Remember that goal setting sits with data gathering in Step 2, not in Step 1.
If a question mentions changes in the client's life or markets after the plan is in place, think Step 6 and a possible review of the plan.

Practice questions from Introduction to Personal Financial Planning

Financial Planning Concept and Process in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Financial Planning Concept and Process: frequently asked questions

What are the six steps of the financial planning process?

They are: establish the client relationship, gather data and determine goals, analyse the client's financial status, develop and present the plan, implement it, and monitor and review it. Learn them in this order.

What is personal financial planning in simple words?

It is a structured way to manage a person's money so they can reach their life goals. It looks at income, expenses, assets, liabilities, insurance, tax and risk, not just investments.

Is the financial planning process a one-time exercise?

No. The last step is monitoring and review, which feeds back into earlier steps. Plans are updated when the client's circumstances, goals or markets change.

Why is data gathering done before making recommendations?

Advice must suit the client's situation, goals and risk capacity. Without complete and accurate data, recommendations cannot be suitable.