As the financial advice sector shifts steadily away from product based selling towards true advice propositions, the role of future cashflow analysis is coming more and more to the forefront. To pin my colours to the mast, I’ll go as far to say that I believe future cashflow analysis will become the cornerstone of the financial planning model of the future.
Why I hear you ask…
First of all, regulatory change will somewhat drive this process. The financial regulator has publicly declared their determination to remove any potential bias or conflicts of interest from the sale of financial products. While this does not necessarily mean an introduction of the market changes as seen in the UK under the Retail Distribution Review (RDR), there is no doubt that at a minimum there will in the future be a demand for even greater transparency in how product choices are made by advisers, and in the method and levels of remuneration received.
There are many advisers who are already very comfortable with this, who already have developed clear advice propositions for their clients, with products then being utilised to achieve the objectives identified in the development of a financial plan. This is a great step, however it can’t just be about “dressing up” a product recommendation. Your process needs to help plot out the financial future for your clients, not simply be a point in time report. Is a plan really a plan for the future without future cashflow analysis?
To my mind, excellent Financial Planning is a more holistic, long term approach, and future cashflow analysis sits at the heart of excellent financial planning.
Basis of ongoing value
This really is the nub of why I think future cashflow analysis plays such an important role. I think it adds so much value.
My own adviser uses the Voyant system, and for me this has transformed my own view of the incredible value a good financial planner, using the right tools can bring. I now have a clear picture of how my financial future is shaping up, where there are real challenges for me in achieving my objectives and as a result we have devised a strategy to meet these challenges. Note the “we”! This approach gets the adviser and client working collaboratively to identify the objectives, identify weak points and devise solutions.
And of course we need to review this every year as yes, there have been plenty of assumptions made; my earnings, savings, investment growth levels etc. But we have a firm foundation to work from and tweak as we go. These reviews are incredibly valuable to me, ones that I’m happy to pay for because of the value I get from them. So at the end of the day, future cashflow analysis can really help you lock in your client relationships.
It helps answer the difficult questions
One of the most important roles that financial advisers play, is helping their clients understand why they are saving money, investing into a pension etc. This can get lost in time as the focus shifts to the product chosen and how it is performing relative to benchmarks and peer products. As a result the desired outcomes and progress towards these outcomes can get lost.
The future cashflow analysis can be adjusted each year to take account of product performance etc. to identify progress versus the stated objectives. This keeps the focus on the all-important end goals, the reasons why clients are investing in the first place.
At the end of the day, these are the answers that clients want answered. Every year at every review. “Will I run out of money”? “Can I afford to retire at age 65”? “Can I afford to educate my children as I want”? These are the questions that keep clients awake at night. These are the questions they want your help to address.
Introducing Future Cashflow Analysis to your clients
So how do you start? Well you can start with an excel spreadsheet if you are so inclined and develop your own model. Or instead, you can buy an off the shelf package. I mentioned the Voyant system system earlier as it so impressed me. It captures all the critical information, creates very engaging graphs for the adviser to walk through with clients and produces high quality reports for the adviser to use. If you’re not an excel whizz kid, it may well be the route to go.
So if like me you are convinced that future cashflow analysis is an integral part of proper financial planning, the first step is to embed it as a core part of your planning proposition to your clients. Tell them about it, make sure they fully understand the value to them of this approach and then charge them accordingly for the value you are adding. This can be through commissions earned on product sales or indeed through fees.
At the end of the day, future cashflow analysis can help to drive up the value clients place on your services, it can help to build a long term dependency on your services and it can drive up your revenue.
Do you use future cashflow analysis in your business. If so, do you agree with the above? If not, by not? All comments are welcome and will be shared!