Cashflow planning has become a vital part of the financial advice process, helping clients to understand the impact of their financial decisions and explore a number of ‘what if’ scenarios.
Professional Paraplanner’s latest Parameters Survey looked at the use of cashflow planning within firms, how and with which segments of clients it was most used, where it wasn’t used, and why it was growing in popularity.
All responding paraplanners said they now use cashflow planning with clients in some capacity.
A quarter of respondents said they use the tool with all clients, while 45% said it is reserved for ‘some clients.’ Meanwhile, one in three (30%) said they prefer to use cashflow planning for higher net worth and more complex clients only.
The results of the survey showed a preference for using the tool among clients in the decumulation phase, enabling them to understand the various risks that could affect their retirement income.
As one paraplanner explained: “Clients approaching or reaching the decumulation stage, whatever their wealth, generally always have cashflow analysis as part of their ongoing review service or for any new advice.”
The findings of the survey also showed agreement among paraplanners that the use of cashflow planning is becoming more popular.
One paraplanner said they currently use cashflow planning for pension clients in decumulation as well as complex holistic planning cases but are set to include a cashflow forecast with each annual suitability assessment letter in the near future.
Another respondent told Professional Paraplanner: “It is becoming more and more common as clients really appreciate them.”
However, despite their growing popularity, only a third (32%) of paraplanners include cashflow planning in all annual reviews, compared to 64% who do not.
Should all clients have cashflow planning?
When asked whether all clients should receive cashflow plans, only 30% said yes and 17% said no while the vast majority (53%) said it depends.
A combination of individual client circumstances, objectives and lifestyles was cited as the leading reason why paraplanners opt to use cashflow planning for some clients but not all.
“For some clients, such as the super wealthy or those with unclear, long-term objectives, it can be of limited use and there is no point including it unless it adds something,” one respondent explains.
Another echoed the sentiment: “It depends on the client circumstances and the investments and advice involved. Where retirement planning is involved, it should be included at least periodically.”
One paraplanner said they offer cashflow planning to most clients, but it has less benefit for super wealthy clients, unless the firm is doing some significant IHT planning.
Younger clients may also find it more difficult to determine later life planning goals and see the benefit of cashflow planning immediately, according to the survey, but many paraplanners still advocated the use of a cashflow plan for those clients.
Bringing the future to life
The majority of paraplanners (60%) said that a cashflow plan can also help clients to better understand their situation by bringing scenarios to life with charts, graphs and other visual tools.
As one paraplanner explained: “Many people are visual and if you show capacity for loss and the impact of taking up protection recommendations for a client and what it means to them rather than ‘you should be ok’, it works.”
A second respondent said being able to illustrate different scenarios to clients also helps them to see the “potential benefits of the advice process and that they are receiving value.”
However, among the four in ten (40%) paraplanners who said that their success depends on the client, one paraplanner said that using cashflow plans for “trivial situations” does not add much value, while another pointed out that it depends upon the complexity of the cashflow and the client’s financial literacy.
Main image: kenny-eliason-vLg64tkqQdg-unsplash-