CPU’s College Financial Planning Process
Educate. Clarify. Analyze. Design. Implement. Monitor
1. Educate
In order for a client to take ownership of, and rectify their situation, they need to understand it. That requires education.
Many in the financial planning industry believe that the first step in the financial planning process is to establish a relationship and fee structure with the client. While we agree this is a critical step, we do not believe most families can make investment, compensation or financial planning relationship decisions until they have a broad understanding of the entire college planning process and how it relates to their situation. Thus, we recommend an educational component prior to accepting fees for investment advice; fees and commissions for product sales; and before entering into a formal planning relationship.
The education process can take a number of forms including seminars, webinars, tools, inventories, etc. Regardless of the method used it must be meaningful enough for the client to take an active role in selecting their solutions.
2. Clarify
At College Planning University, we believe that at the core of the college planning process is the clarification of a family’s values. While it appears that financial aid and tax regulations, as they relate to college, will continue to change each year for the foreseeable future, a family’s values will remain fairly constant.
Financial planners are not only dealing with the usual economic factors heightened by the short-term nature of the goal and the history of college inflation, but they are also dealing with their clients’ dreams for their children. Our experience has been that when numbers change dramatically, emotions may change along with them.
For example, it was not uncommon for families in the late 1990’s to expect their college funds to continue to grow at a 15% annual rate even during their child’s college years. Many families were still looking for the highest performing funds when the bottom fell out in 2001 and 2002. The numbers caused “irrational exuberance” and the college funds of many families paid the price.
On the flip side, when the overall market dropped by nearly 50% in after 2001, families stopped saving, and on average, never returned to prior savings levels.
A plan that is based primarily on numbers not only creates unrealistic expectations, it creates serious potential compliance issues for the planner that crunched them. Only when the client gains a better understanding of their entire situation and the factors that influence it will they take steps to improve or protect their objectives.
Don’t make judgments for your clients. Help them take control. At College Planning University the clarification process begins with an inventory of the client's values.
3. Analyze
The analysis phase of college planning represents the calculations and projections that most clients associate with financial planning.
For years, college planning consisted of time value of money calculations and determining which mutual fund to put the money in. Today, families are much more savvy and demanding. They expect their planners to have investigated every possible option. Those types of demands require planners to become better educated and more efficient.
In addition to the traditional accumulation components of the analysis phase of financial planning, the college plan should the following:
Potential financial aid eligibility estimates.
Variable inflation rate assumptions
College cost variance models
Distribution models and exit strategies
4. Design
By combining the family’s values-based planning objectives with comprehensive data analysis the planner can begin to work to design a realistic values-based college plan.
The design process involves matching the client’s objectives with the products and strategies that offer the best possibility of success.
5. Implement
The implementation phase is primarily the responsibility of the client. The financial planner's responsibility is to assist and guide in the implementation which can last until the goal has matured or terminated.
6. Monitor
By working together the planner and the family monitor and update the college plan. Due to the variable nature of college planning the college plan should be reviewed annually. The family is responsible for notifying the planner of changes in the family’s financial situation and objectives as they occur. The planner is responsible for proactively contacting the clients as factors affecting their assumptions such as changes in legislation occur.