How to Read a Financial Plan as a Client

Your financial plan is the tone setter for your money decisions. It may look like a long document, but it’s meant to highlight what matters most right now and what steps come next. It also helps you and your advisor align on the strategy and actions required to reach your goals.

In this guide, we’ll break down the key elements you’ll see in an advisor-led financial plan and what each section means. We’ll highlight the assumptions and details worth double-checking. You’ll also learn how to turn the plan into action, whether it be asking better questions or implementing a professional’s recommendations.

What Is a Financial Plan?

Before you speak with a financial advisor or read a document they share, it helps to understand what to expect. Financial planning, when done right, is not a one-off document deliverable. Instead, it’s a fluid and ongoing process that may take several years or decades.

As John Jones, CFP^®, EA, an investment advisor representative at Heritage Financial, puts it, “financial planning is a process; it is not a one-time plan deliverable.”

In an advisor-led financial planning arrangement, the process may look something like this:

1. You communicate your financial situation and goals, such as retirement, a home purchase, or paying for a child’s education.
2. The advisor reviews and analyzes these details, then builds recommendations across areas like investments, retirement income, cash flow, taxes, and estate planning. Some may require immediate action, while others play out over longer periods.
3. After you, your advisor, or both implement the recommendations, you monitor progress and adjust as needed to hit key benchmarks and stay aligned with your long-term goals.

So, where does the financial plan document fit into this process? Jones explains that the plan often shows up when an advisor “is presenting the financial planning recommendations to their client.” He adds that this comes after “extensive fact-finding, discovery and analysis regarding the client’s position and trajectory under current circumstances.”

The exact format of the documents you receive may differ depending on the advisor and the software they use, but a high-quality plan should clearly connect your current situation to the specific changes it recommends.

What a Plan Should Include

When an advisor presents their recommendations, they’ll send you a written,  comprehensive financial plan. This document tends to comprise several important parts, which both lay the foundation of your goals and explain how you’ll get there.

Goal and Priorities

A high-quality plan spells out your goals in clear, measurable terms, not just general ideas. Ideally, it also shows which goals come first if there are tradeoffs, and what milestones you should hit along the way.

As you read, look for specific targets like dates and dollar amounts, plus any checkpoints that tell you whether you are making progress. If the goals feel vague or competing goals are not prioritized, ask your advisor which goal is driving the plan’s biggest recommendations.

Net Worth Snapshot

This section helps you understand where your net worth stands at a given time. In turn, you’ll have a better handle on where you are now vs. where you’d like to end up after years or decades. To obtain this, an advisor would tally up the total value of your assets and subtract this number by the sum of your liabilities.

When you look at this statement, pay close attention to ensure it’s clear and accurate. Be on the lookout for outdated or incorrect numbers pertaining to your assets, for instance. If anything stands out, be sure to call them out to your professional.

Cash Flow and Savings Plan

A major way to achieve your goals is by effectively managing your cash flow and savings. For this reason, many advisors will outline recommendations for how you should budget or structure this aspect of your finances.

“First, we model a detailed, near-term cash flow, often covering the next 10 years. This allows us to closely examine income sources, expenses, and resulting net cash flow during the most actionable phase of a client’s life,” says Lena McQuillen, Director of Financial Planning at Bailard, Inc.

If your cash flow plan shows you have a surplus, McQuillen notes that your advisor will typically identify how that money “can be allocated efficiently.” This may include placing them in a high-yield savings account for short-term needs or an investment account, such as a taxable brokerage or individual retirement account (IRA).

Retirement Plan and Projection

Reaching retirement is one of the most common reasons people seek out a financial planner, so most comprehensive plans include a plan and projection to adhere to. This section typically maps out where your income will come from, how much you might spend in retirement, and your progress to your goal (or a target age).

As you read, be attentive to not just the projections themselves, but the reasons your advisor has for them. A helpful question to ask is what the plan recommends changing first if results are worse than expected, such as saving more, adjusting spending, or shifting your timeline.

Investment Strategy

This section breaks down how the advisor believes you should invest your money to support your goals. In many plans, that means a recommended asset allocation and an approach for rebalancing and monitoring. They might also suggest how you should invest across various accounts going forward.

It’s important for you to understand the why behind an advisor’s recommendations. The plan should connect the investment approach to your time horizon, risk tolerance, and goals. It should also address costs, such as fund expenses and advisory fees, since small differences can add up over decades.

What Drives Recommendations

When an advisor builds a comprehensive plan, they’ll use a variety of qualitative and quantitative information to tailor it to your needs. These come from both your meetings with them and factual details about your finances, including your net worth and the current state of your portfolio.

Qualitative Information

Qualitative, or subjective, information is integral in shaping your goals and how you’ll reach them. This type of data applies to the preferences you have as an investor and in life. It also relates to data points, such as life expectancy and family circumstances, that aren’t easily measured.

For example, Chris Cohan, ChFC^®, RMA^®, Estate and Wealth Advisor at RJP Estate Planning, explains that it’s crucial to consider “what-if” scenarios that can dramatically impact the trajectory of your life and finances. He said it’s important to consider “what would happen if your spouse suddenly passes away, what would happen if you or your spouse get sick and are unable to work, or if you or your spouse are laid off and lose an income and have expenses and bills that need to be paid.” While hard to think about, including these in your plan can help lessen the blow or better prepare you for the worst.

Below are other examples of qualitative information:

• Health
• Values and attitudes
• Earnings potential
• Risk tolerance
• Goals and needs
• Expectations and priorities

Quantitative Information

The other key piece to a financial plan is quantitative, or objective, information. This refers to details about your finances and life that are mathematically measurable. Your net worth and cash flow are notable examples of this.

Quantitative information might also apply to external forces, like inflation, however. Jones explains that, in particular, inflation “is a powerful factor because it will indirectly determine how far an individual’s purchasing power will go” and can “be impactful from a financial cash flow perspective” if the rate is higher than expected.

Other examples of quantitative information include:

• Age
• Dependents
• Income and expenses
• Savings
• Taxes
• Ability to take on risk

Common Financial Plan Misconceptions

Even if your financial advisor presents a high-quality plan, there are some aspects that may be easy to misunderstand if you’re unsure. One of the most common mistakes, for instance, is treating a projection like a promise or static number. These are built on assumptions and various data points, but they’re susceptible to shift if conditions or circumstances (such as those listed in the section above) change.

Another complex subject that may be easy to misunderstand, according to Jones, is “taxes integrated into portfolio management and financial planning.” He explains that, in his experience working with clients, “there is a disconnect between taxes and financials. Tax preparation and planning are completely different and mistaken for the same thing in my experience.” Not only that, but he calls out tax-loss harvesting as “the single item that creates the most confusion.”

Zooming out, another misconception is expecting a financial plan to simply be about getting positive returns on your investments. Cohan emphasizes that, while that’s an important piece, a comprehensive guide is meant to “try to get you to your retirement goals and objectives.” He also adds that a plan isn’t something to “set up and forget,” but one that should be “reviewed on a consistent basis because life can get in the way unexpectedly.”

What to Do After Reading

After you read the plan, it’s a good idea to begin thinking about what will happen next and the actions you may need to take as a client. The first natural step is to ensure you fully understand what is in the guide. It’s a smart idea, therefore, to write down questions as they come up and bring them to your next meeting with your advisor.

Examples of clarifying questions could be on broader topics, like, “I didn’t quite understand my retirement age projection. Would you please explain how that works?” or more detailed subjects, such as, “how will tax-loss harvesting impact my returns?” Either form of inquiry can help you better understand your financial picture and the vision your advisor might have.

Once you feel like you have a handle on your plan, the next step is to begin turning their recommendations into action. You can begin making a list of tasks to implement changes needed on your end, including managing a budget or investing consistently each month. It’s also important to pay close attention to deliverables from your advisor, especially if they’re in charge of overseeing your portfolio.

Moving ahead, the financial planning process requires monitoring and consistent check-ins from both parties. This allows you to be aware of how well you’re progressing toward your goals. You and your advisor will also determine if any adjustments to your strategy are necessary.

Frequently Asked Questions

What should I ask my advisor after receiving my plan?

Asking questions both about the plan’s content and what you should do after are ways you can gain more clarity going forward. For instance, you might ask about certain numbers or projections and why those sit where they are. You might also ask about the implementation of specific strategies, like how your advisor will invest your assets or manage risk.

How do I know if a financial plan is high-quality?

McQuillen describes a high-quality financial plan as one that is “clearly personalized, with assumptions, recommendations, and trade-offs tied directly to the client’s actual financial situation and stated goals.” It should be evident that the overall guide is tailored to your needs, not cookie-cutter or low-effort.

How often should a financial plan be updated?

There isn’t a one-size-fits-all rule here, but it’s wise to meet with a financial advisor at least once or twice a year to review your plan and ensure you’re on track. If you’re a high-net-worth individual or have a more complex situation, you might require quarterly or even monthly check-ins to tackle in-depth projects.