Is cashflow modelling the key to turning us into financial planners?

26th June 2018

In last month’s blog I considered whether we are an industry or a profession.

I argued that for many the journey from adviser to planner is already well underway, while an increasing number have already arrived at their destination. That shift from advising on products, tax and investments to a more strategic approach, based on sound financial planning principles, has occurred partly due to the wider adoption of cashflow modelling tools.

Before I continue, let me make it clear that I’m aware of the sensitivities around the term: “cashflow modelling”. I know many planners prefer alternatives. However, for clarity I am of course referring to software such as Truth, Voyant and CashCalc, and for the sake of brevity, I’ll continue to use cashflow modelling for the remainder of this article.

Wide use

In many ways, the introduction of RDR followed a few years later by Pension Freedoms made the wider adoption of cashflow modelling, and the move toward financial planning, inevitable. They are of course the two pillars which hold up your client’s financial future; both are equally important and without them, your client’s future will be less assured.

Naturally, there are opposing views (when was it ever any different in our profession?) and there are those who dismiss the need for cashflow modelling. Many cite the fact client circumstances constantly change and financial plans consequently become quickly outdated. Others believe their clients are too wealthy, or too poor, and don’t need cashflow modelling. These are all valid points of view, which I respect, but nevertheless disagree with.

Let’s take a slightly different perspective…

As Executive Chairman it’s vital that I understand the future direction of our business:

• Are we on-track to achieve our targets?
• How would potential threats affect our plans?
• Which areas of our business are performing well, and where could improvements be made?

To answer those questions, I have a wealth of information at my disposal, including strategies, plans and financial forecasts. Why should it be any different for my personal finances? It isn’t, and nor should it be for most consumers.

A win-win

Cashflow modelling doesn’t have to be complex. In many respects the simpler the plan, the easier it is for clients to understand and stick to. However, it’s a vital component of true and effective goals- based financial planning.

The adoption of cashflow modelling, in the context of financial planning, has many advantages for clients:

• It provides clarity on the progress they are making towards their goals. When they initially meet you, most clients will be in the dark about whether their current arrangements will meet their financial objectives. Cashflow modelling will answer that question.
• It allows for additional possibilities and scenarios, both positive and negative, to be tested and understood.
• It provides confidence and reassurance that their financial future is in safe hands.
• It allows them to visualise their financial future in the form of images and graphics, which are so important to those people who find interpreting sets of numbers and tables difficult.

There are also many benefits for your business. Adopting cashflow modelling will:

• Help facilitate more meaningful, goals-based, conversations.
• Change the focus of review meetings from investment performance toward goals-based financial planning (as regular readers will know, we firmly believe that those advisers and planners who let go of their investment management, will take control of their business).
• Help you grow your business through increased referrals and recommendations as those clients who you help achieve their goals see the benefits of financial planning.

Adopting the new model

Of course, the transition to becoming a true financial planner is about much more than simply adopting cashflow modelling software.

It starts with a change of mindset (or at least a continuing evolution) from that of an adviser to a planner. Developing the necessary financial planning skills takes years. In fact, we should never stop learning and I’m not sure it can ever be perfected.

Then there’s the practical stuff; changing advice and service propositions, migrating old clients, training staff, updating your marketing strategy and proposition…all these things take time and effort.

The pay off though is massive; more clients will achieve their ambitions, your business will be stronger and your own job satisfaction may well improve too.

So, back to the original question; is cashflow modelling the key to turning us into financial planners?

No. But it’s certainly part of the answer.

The movement from financial advice to financial planning, and consequently from an industry to a profession, takes much more than the adoption of software. It’s a complete change of mindset (for you and your clients), processes and proposition. However, used correctly cashflow modelling software certainly has a vital part to play.

I’ve seen the reaction of those clients who have had the veil of mystery over their financial future lifted. It has got to be one of the most rewarding aspects of what we do.