How Cashflow Modelling Helps Clients Plan For The Future
Financial confidence can have a hugely positive impact on lives. We wanted to share with you one of the methods we use to give individuals we work with confidence in their financial future; cashflow planning.
As financial advisers, our goal is to give each client confidence in their financial future. There are many stages in life where financial circumstances and priorities can change, from experiencing divorce to retiring. One of the tools we use to help clients understand how their finances may change over the short, medium and long term is cashflow modelling.
What is cashflow modelling?
Cashflow modelling is a way of showing how finances can change over an extended period of time depending on the decisions made today, as well as how circumstances out of a client's control can have an impact.
It starts by collecting data that represents a client's current situation. This may include how much they hold in pensions, income compared to lifestyle expenditure, and the size of an investment portfolio. By inputting this information, we're able to create a visual representation of wealth over time.
The visual aspect of cashflow modelling is one of the key benefits. It can often be difficult to understand wealth and the impact on lifestyle when you're talking about numbers. A client may know their investment portfolio is targeting growth of 4% per annum, but what will that mean in five- or 20-years' time?
Whilst incredibly useful, cashflow modelling goes beyond this. It allows you to manipulate the data to show how decisions will affect short, medium and long-term wealth. As a result, it can help answer questions like:
- Will I have enough income to achieve my desired retirement lifestyle if I give up work five years early?
- Will my partner be able to cope financially if I were to pass away?
- How much can I expect to leave to my loved ones as an inheritance?
- What if my investments under-perform?
- How would taking a lump sum out of my pension at 55 affect future retirement income?
Giving clients confidence in the long term
Cashflow planning helps clients answer 'what if?' questions and allow them to put appropriate measures in place where necessary. For example, a client that is worried about how well their family would cope if something were to happen to them may decide it's appropriate to take out life insurance or income protection policies to act as a safety net.
Understanding how wealth could change over the long term can help give clients the confidence they need to live their life.
The drawbacks of cashflow planning
Cashflow planning can be incredibly useful to a wide range of clients. However, there are drawbacks to the tool that should be kept in mind and balanced with other methods of ensuring financial confidence, including:
- It's only as good as the information used: Effective cashflow modelling relies on the information that is added. If there are inaccuracies or omissions are made, it can mean the analysis delivered falls short.
- Unforeseen factors: You can use cashflow modelling to predict the impact of events outside of a client's control. However, you do need to consider these in the first place, sometimes unforeseen events can have an effect that hasn't been calculated.
- It needs to be regularly reviewed: The unexpected does happen and financial situations can change significantly over even a short period. As a result, to continue being useful to clients, cashflow modelling, and the information used, needs to be reviewed regularly.
- No guarantees: Finally, it's important to remember that guarantees can't be made. Whilst we can model how wealth would change if investments delivered 5% returns, markets could under-perform and affect the actual returns.
If you would like to learn more about cashflow modelling and whether it could be useful to your clients, please get in touch. One of our team members would be happy to chat with you.
5 Ways Professional Connections Help Your Clients
Creating a network of professional connections can help clients access the joined-up advice they need at different points in their lives. We believe partnerships with other client-facing professionals are essential.
Building up a network of professional connections can be excellent for business and building up our client base. But it's also helpful for your clients too. At different points in their lives, having access to knowledgeable professionals in a range of industries can be valuable.
Relationships are an important part of the service that we deliver as financial planners. Whether you're a solicitor providing support through an emotional divorce or an accountant advising on business matters, relationships play a critical role in your service too. Clients might first contact you with a problem they want solving, but expertise and guidance need to be backed up with excellent relationships.
Of course, there will be times when a client needs expertise that falls outside your remit. As a trusted professional they may come to you directly for advice or be able to offer carefully selected referrals when an issue comes up. This is where professional connections can add value to both you and clients.
Having a bank of go-to professionals you can confidently refer clients to help cement your business as one that operates with clients' best interests in mind. Among the benefits to clients are these five:
1. Accessing a range of services needed
There will inevitably be times in their life when clients can benefit from different types of advice and service. Perhaps you've been working with a small business owner for decades, but as they think about selling their firm, they may need to start considering planning their financial future. This is an area we could help with. Alternatively, clients that receive financial advice may need the knowledge of a solicitor for a variety of reasons, from writing a will to going through a divorce.
Working with other experts in their fields allows you to put clients in touch with a comprehensive range of sources when they're needed.
2. Creating a joined-up approach
Working with multiple professionals can be stressful, not least because clients can be left feeling like the middleman and finding it difficult to keep track of where things are. An efficient, professional network can take some of this burden away from clients. Having solicitors, financial advisers or accountants that you regularly work with can mean processes and handling of information is smoother, as you'll understand how they operate. From a client perspective, it can make potentially challenging or time-consuming issues far easier to deal with.
3. Having confidence in the services offered
When you work with someone new, there may be some apprehension about the services they offer and whether they can be relied upon. Referrals from professionals they are already familiar with and trust can give clients confidence as they seek advice.
Often, recommendations of friends and family are sought after first. But if no one has needed the services they're seeking, it can leave them feeling at a dead end. Of course, the internet offers plenty of review sites but how much can you trust what you find on these? As a result, clients will often seek a personal recommendation to give them confidence in the services being offered.
4. Ease of finding appropriate professionals
This links to the above point. Whilst there are numerous professionals to choose from, understanding whether the service they offer is right for you can be difficult for clients. With a professional connections network that you frequently work with, you're in a position to take this weight from your clients. By referring clients to professionals, you know can provide the necessary support, you can help set them up to make a decision that's right for them.
5. Confidence in the future
When individuals seek the services of a financial adviser, accountant or solicitor, it's often because they have a specific problem or concern. Professional referrals can help clients to take control of their current situation and have confidence in their future, whether they're retiring, getting married or starting a business.
Professional connections as a source of business
Of course, it's not just clients that benefit from professional connections; your business could too.
Prudential's 2018 Adviser Barometer highlights the positive impact it has for financial advisers:
- Nearly six in ten (57%) financial advice firms expect more business from law firms and accountants
- Accountants and solicitors are rated as the second-best source of new business behind existing client referrals
- The relationship between financial advisers and accountants and solicitors has been increasing in recent years, potentially linked to the rise in clients seeking advice on Inheritance Tax and retirement Income Tax which can be complex. Vince Smith-Hughes, Director of Specialist Business Support at Prudential, said: Advisers pride themselves on delivering excellent service and support to existing clients and that is reflected in the fact clients remain the best sources of new business.
However, partnerships are becoming more important to help drive business and working with lawyers and accountants is clearly a good way for advisers to expand their existing clients and attract new business. Growth in demand for Inheritance Tax and retirement income taxation highlight areas where advisers are likely to be working in conjunction with other professionals.
If you would like to learn more about how Professional Connections can help your clients, please get in touch. One of our team members would be happy to chat with you.