No one wants to add steps to their advice process if they can’t be sure of the impact. Here Steph Willcox, head Actuary, Dynamic Planner busts some myths about cash flow planning and think about how it can add value in an adviser’s yearly cycle, and the impact that paraplanners can have.
Myth: It takes a lot of time and effort to set up a cash flow plan, so we don’t produce them for every client. We generally only create a cash flow plan for wealthy clients, and only at milestone events like retirement.
As we’ve seen throughout this series, cash flow can be useful at all stages of life, even younger clients who are yet to amass their wealth and have competing financial goals; like saving for a house deposit, covering parental leave and planning for retirement.
Cash flow software solutions are designed to reduce the burden on paraplanners and allow them to set up complete financial plans more quickly than ever. In fact, our own MI at Dynamic Planner shows us that 80% of people are completing their cash flow plans in 34 minutes or less.
Much of this time saving is because you already have most of the data to hand once the annual review has been completed. Although you need to gather more information from your client on their income and expenditures, it’s likely this can be collected digitally without having to type it in yourself.
When you have everything to hand, the cash flow plan will largely build itself and a quick play around with dates should leave you with a plan ready to be sent to the adviser, or even the client, ready for a discussion.
Using a cash flow plan to bring a client’s goals to life can also generate buy-in to the recommendations being made. Once your client knows the goals they’re trying to reach, and the probability of doing so, it becomes easier for them to stick to the recommendations they’ve been given, and should reduce the shocks that you see coming through next year about financial decisions made throughout the year!
Revisiting a cash flow plan each year shouldn’t be any more strenuous than confirming incomes and expenditures, performing your annual review to pull through updated valuation numbers, and ensuring the adviser discusses any goals that might have changed.
Myth: We don’t see the benefit of creating a cash flow plan. Clients are confused by all the charts and get bored reading a long report.
A final report is a great resource for your client to have, but producing it is not the only reason to do cash flow planning. The process of creating a cash flow plan, along with different scenarios for your client to consider, is as or more useful than the final report itself.
It seems redundant to say, but clients seek financial advice when they can’t make a decision – they need your help. Giving the adviser different potential scenarios to discuss with a client will have rewards down the line. A client who understands the risk they are taking in their portfolio won’t be on the phone if they see their investments drop in value at some point. Most importantly, a client who understands their own finances and the recommendations you have made will be less likely to take their own action and potentially damage their chances of achieving their goals.
Myth: Life’s too uncertain, with too many ‘what ifs’ to make a cash flow plan realistic.
I think we can all be confident when we say that no cash flow plan will ever entirely come to fruition. The aim of cash flow planning is to give your clients an idea of what their lives will look like if they continue to earn, spend and invest in the way you’ve set up. It also effectively shows the impact of different scenarios, so that they can pick the best approach.
It can’t possibly model what different taxes may be introduced in 5 years or predict what new products might be invented over a client’s lifetime, so it’s important to focus on what we can use cash flow modelling for.
Giving your clients peace of mind that their finances are taken care of can certainly be achieved using cash flow modelling. You can show clients what their lives would look like if they could no longer work, or if their partner died, or if their expenditure suddenly rose by 20%. You can focus on your client’s fears to show them how they would cope in each of these circumstances, and produce a robust financial plan to support them whatever happens in the future.
Whether a client’s deciding these options for themself, or their adviser is, bringing suitable scenarios to life is another way to personalise the service they ultimately receive.
Main image: alex-alvarez-63YVMrL2d6g-unsplash
