The case for using personal balance sheets

Using personal balance sheets offers a good way to illustrate the breakdown of clients’ assets and ensure any advice is concentrated on the right areas.


The risk committee of Smith Jones Financial Advisers has been trying to introduce a major change to the way the firm’s financial advisers carry out the financial planning process. They think that their insistence on having a consistent process will reduce risk for the firm and greatly increase the actual and perceived value of their service to clients

They have been using Taxbriefs Advantage as a route-map to achieve this major change. The risk committee is basing the required new procedures on the ISO 22222 financial planning process which consists of six main steps.

There is always a temptation for some advisers to skip some of these steps, but the one that’s most frequently left out is ‘Analysing and evaluating the client’s financial status’ – the third step. There is a tendency to leap directly from fact finding straight to recommendations, without the necessary intervening stage of thinking about all the areas in which advisers can help the client.

The upshot is that many advisers just look at one problem and one solution, missing out many of the other important issues and so opportunities for added value. 

Preparing a personal balance sheet of clients’ assets and liabilities is a key part of this third step in the financial planning process. 

Basically this step consists of three stages: 

  • summarising all the facts in ways that make sense of them and highlight the main issues
  • then analysing the situation to identify the problems and gaps
  • finally, prioritising the client’s needs.

One of the reasons for creating an organised summary is to present clients with a picture of their finances in ways that they have probably never seen before. Clients often have a pretty vague idea of their financial affairs. The other reason is to check that the fact finding has been carried out accurately.

Individual balance sheets

The income and expenditure analysis and the lifetime cash flow are crucial, of course. But so too is the personal balance sheet, which is often omitted or simply confined to a statement of financial assets. The principle is that it makes sense to consider an individual or family in much the same way as a business from a financial view point, showing the profit and loss account and the balance sheet.

The balance sheet is a snapshot of the client’s assets and liabilities. In the case of a couple, it is important to show who owns what and what they own jointly. The same applies to liabilities and it makes good sense to link each debt or other liability to any assets on which they are secured – although this may only be possible through notes to the balance sheet.

At the highest level assets should be divided up into used assets and financial assets, with the latter further split into investments and pensions. Some assets, like holiday homes that are let from time to time, might straddle both used and financial assets.

The example of Jenny and David below shows the main types of assets and who owns them.

It is a good idea to show percentages of the gross total assets. The adviser should relate these balance sheet figures to each other. For example, clients should be aware of how much of their total wealth is in the form of property and the extent of the borrowing that clients have in relation to their total assets.

The adviser should also relate the figures to other client data with ratios such as borrowing to income, cash and other liquid assets as months of expenditure, total liabilities in relation to total life assurance and critical illness cover. All these ratios will help identify strengths, weaknesses and gaps in the client’s financial planning.

Example – Jenny and David’s total assets







of total

Main residence




Holiday home










Total used assets






Cash deposits






Funds and investment bonds






Total investments






Pension funds+





Total financial assets












Less mortgage




Net wealth





* Held as a joint tenancy

+ DC schemes current values

The investment part of the balance sheet obviously deserves a good deal of attention and analysis. It is especially important to show the client’s current asset allocation across tax wrappers as well as within them. The adviser can then compare this with the asset allocation the client has agreed in the risk profiling process.

Pension assets need to be shown in the balance sheet, but separated from the other assets because they have special features in terms of their liquidity, tax treatment and the fact that they cannot be used as security for loans.

Some clients like to see comparisons between their current balance sheet and their position in the previous year or perhaps five or even ten years earlier. The adviser can demonstrate progress and a direction of travel.

The balance sheet is the basis for much other planning – including estate planning and inheritance tax mitigation and the recommendations for life assurance and other protection recommendations.

When the Smith Jones risk committee came to discuss the recommendation that the balance sheet analysis should be an integral part of every client’s planning, they wondered why they had not insisted on it before.

Danby Bloch is editorial director of Taxbriefs

Taxbriefs Advantage is a new online content resource aimed at giving financial advisers, planners and paraplanners a clear business advantage. Advantage provides you with unbiased, independent answers to your technical queries. Marrying Taxbriefs’ quality content with focussed functionality, Advantage allows you to build up your own library of regularly updated content to export and share – visit and find out more.



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There is one comment at the moment, we would love to hear your opinion too.

  1. It’s good to see this being publiscised (advertised?) together with the ‘six step’ financial planning process.

    I was with Acuma (American Express) in the ’90s and we were doing that then.

    In my experience as an adviser (1988-2005) no other firm came close to that type of approach with only the most rudimentary analysis process.

    The presentation of hard facts following a concentrated discussion about desired outcomes and their importance is a strong motivator. Probably why Acuma sold so much IP, a supposedly difficult ‘sell’.

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