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Cashflow modelling integral to the advice process

7 August 2023

Many advisers have long found cashflow modelling tools useful to more clearly demonstrate how a client’s financial plan is likely to perform in different market conditions. As we enter the Consumer Duty era, and the need for regulated firms to “avoid foreseeable harm” to consumers, we think cashflow modelling will become even more important.

In fact, we believe cashflow modelling is now such a vital part of the financial advice process, that we recently added it as a central capability within intelliflo office.

The impact on economies, stock markets and people’s lives from the pandemic, the invasion of Ukraine and the cost of living crisis, all serve to remind us of how quickly things can change. Unexpected events can derail carefully laid plans or cause us to rethink our goals. Back in late 2021, when we still had compulsory face masks and covid passes, our research among 330 advice professionals found that 70% said their clients had experienced significant changes to lifetime plans as a result of Covid.
More recently, a House of Lords report at the end of 2022, stated that 565,000 more people had become economically inactive since the start of the pandemic, with those taking the ‘lifestyle choice’ of early retirement the biggest contributor to the change1.

Supporting financial decisions
Among all this uncertainty, cashflow modelling has become a vital tool to support advisers in delivering the best outcomes and avoiding foreseeable harms. By helping to turn the complexities of financial planning into simple, easy-to-understand roadmaps for clients, it illustrates the power of financial advice through up-to-date, visually engaging cashflow charts and data.

Using the client’s own data in real-time brings to life how different financial futures could look, supporting more informed decisions around significant lifestyle changes. For instance, it can show the impact on future wealth of taking early retirement, moving home or assisting their children in realising their own life goals and help a client decide whether these are realistic options at present.

Fully understanding the choices available, or what steps need to be taken to achieve their financial objectives, not only supports the Consumer Duty consumer understanding outcome but also creates stronger emotional engagement with the advice process. This in turn fuels greater confidence in the plan and helps demonstrate the long-term value of your advice.
Driving efficiencies
For firms too, fully integrating cashflow modelling into your advice process can improve efficiency, so you can build, adapt and stress-test clients’ plans in real-time with minimal effort and maximum impact. The tools can also support your regulatory requirements, helping you evidence suitability and, under the new Consumer Duty obligations, that you are using the correct products and services for your target client segments.

Our conversations with advisers tell us that while the majority believe cashflow software is the most important tool to help clients meet their long-term goals, many do not use it with all clients.

Of course, cashflow modelling will not be useful for every client every time. However, we believe there is a strong argument for more firms to use it more frequently, putting it at the heart of the advice process to support financial planning decisions and drive efficiencies.

Cashflow modelling tools are becoming increasingly sophisticated, offering unlimited scenario planning so you can compare the impact of different strategies side by side, taking much of the guesswork out of long-term planning. They have also evolved to become much more intuitive, providing a transparent audit trail to minimise your compliance burden. And now, as an integral part of your practice management system, they can be integrated into your process and your overall advice proposition with one point of data entry, avoiding the need to duplicate data entry or log in to multiple systems.

We think that putting cashflow management at the centre of the client relationship can add significant value for both advisers and the end customer, while at the same time helping firms meet their regulatory obligations. It’s a win-win all round.

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