In a new series of articles for Professional Paraplanner, Steph Willcox, head Actuary at Dynamic Planner, will look at how cash flow can best be used to add the greatest value to clients. In this article she looks at how cash flow can be used to help early career clients establish their financial advice journey.
With Consumer Duty now embedded into our lives, it’s important that the work that we do for our clients every day adds value to their lives and their financial journey. Cash flow planning can be a vital tool in adding value, but it is sometimes reserved for particular clients or specific stages of life.
In this series of monthly articles, I’ll be taking a deep dive into different phases of life and discuss how cash flow planning can be utilised to bring real value to every client, at every phase. It’s all a matter of tailoring your approach to answer the real questions your clients have and bring their financial journey to life.
This month’s focus is the youngest type of client; those just starting out on their career journey, probably in their 20s, with lots of competing financial goals. Although they are unlikely to have a large amount of wealth, they are at the best point to start saving, to really make use of compound interest. They need guidance to understand how they might finance different goals, which may include saving for a house deposit, engagements, weddings and holidays.
Engaging with clients before they amass wealth is not always in the adviser’s business plan, but it can result in great payoffs as a client gets older, with the right advice from the very start.
What should you focus on?
Younger clients typically have the tightest budgets, so ensuring the data you hold on incomes and expenditures is up-to-date and reflects reality is important. Educating clients on budgeting and how to make their money go further is also crucial, as the earlier they start to save, the more they will feel the effects of compounding returns.
Understanding the goals they are working towards is vital too. Adding monetary values and timings to things like buying a house or paying for a wedding or honeymoon can bring these goals to life visually and help to educate your clients on what they are saving for. Moving these goals around can show a client when they may be able to achieve their goals, and what the realistic timelines are for each of their planned spendings.
Although saving for retirement is not likely to feature highly in your client’s goals, you can also quickly show them the effect of saving an extra per cent or two into their pension from a young age. It could make a huge difference to their pension pot at retirement, and therefore their standard of living later in life.
Cash flow tools are primarily educational tools, and helping your clients to understand risk and return is a vital part of the financial planning process. Demonstrating the range of portfolio values they may expect to see over time can help cement the uncertainty of investing in your client’s minds.
What is less important
Although it’s a good idea to show clients the impact of contributing to a pension, it’s not necessary to be overly focused on retirement planning at this stage. With pensions unlikely to be drawn for 30 to 40 years, we have no sight over what the taxation or product landscape might look like at that time. A general idea of retirement is all we can give at this stage.
The same is true for estate planning and end of life taxes that will probably change greatly before your youngest clients reach that age.
Cash flow planning can be utilised for protection purposes, but this is unlikely to be a major factor until your clients have mortgages and dependents to worry about, so it’s not usually worth putting time into creating protection cash flow plans.
In short, inviting younger clients to use cash flow planning is likely to set you in good stead for your relationship and their financial plans over their lifetime. If nothing else, it can bring the financial possibilities to life and garner buy-in to the financial advice process in the future.