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Is Future Cashflow Analysis part of your client proposition?

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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…

Regulation

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!

How tuned in are you to High Net Worth clients?

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A number of advisers that I’m working with have put a lot of legwork into getting crystal clear about both their business proposition and their own particular areas of expertise, and as a result are actively changing their business model to work exclusively with a relatively small number of High Net Worth (HNW) clients.

While this approach of course will not work for everybody, there are very few who will disagree with the attractiveness of it, assuming that the adviser can build a strong enough revenue stream around it.

However before you can decide whether you and your business are the right fit for this attractive segment of the market (either to concentrate exclusively on it or as part of your client base), you need to understand some of the drivers behind this group of people. This article sets out some of the characteristics of HNW clients, what they look for and some thoughts on engaging successfully with them.

 

Who are they?

Well first of all, as a result of the economic turmoil, there are fewer HNW individuals around today as many have seen their investments decimated and of course, some now are saddled with significant personal debts.

However there is still a great swathe of people who fall into this category. While there is no strict definition of this group, a good rule of thumb might be individuals with between €100,000 and €1m in investible assets and a net worth of between €500,000 and €2.5m. Their investible assets will usually be held in a mix of pension funds, shares, property investments and some cash too.

While this group recognise that they have well-above average wealth, they usually identify a recurring number of financial challenges;

  • They don’t feel wealthy: Yes, they have assets but they actually still recognise the financial challenges ahead and don’t take these lightly.
  • Educating their children is a recognised challenge: Many HNW people will desire a private school education for their children (at least in secondary school) followed by a minimum of an undergraduate degree. With doubts about college fees in the future, many now recognise the need to plan for education fees for each child for a minimum of 10 years. A not inconsiderable sum.
  • They worry about retirement: This is probably their biggest financial concern (and an obvious area of opportunity for financial advisers). They have a realistic sense of the asset base they need to build up in order to be able to maintain their desired lifestyle throughout their retirement.
  • They want to leave an inheritance: On top of the above, they want to be able to leave an inheritance behind them, recognising the need for building their asset base, as well as having the required levels of life assurance in place.

 

What do they look for?

First and foremost, HNW people need to absolutely trust you. This won’t be achieved by messages on your website of honesty and integrity, instead it will be achieved by what others say about you, what you say and how you act, and your business proposition. They won’t want to deal with you if they feel they are being “sold to”.

Indeed in addition to the above point, they want someone who will recognise them as an andividual by getting a clear understanding of their financial goals and objectives, building a financial plan based around these and then implementing this plan in a transparent and collaborative manner.

Developing a financial roadmap for the client as opposed to simply recommending some products is a critical approach with HNW people.

 

How do you engage HNW people?

Picking up on the above points, there are a number of requirements in dealing with HNW individuals.

  • Build trust: Spend time at the outset gaining their trust. Have client references that they will value, focus on testimonials, and show case studies of approaches you’ve used in the past to develop innovative solutions for other HNW clients. Show them how your business proposition places them at the core of how you advise and that products are merely a part of the solutions.
  • Concentrate on financial planning: Very clearly divorce the development of the financial plan from the product sales piece. Spend time clarifying their financial objectives and structure the plan clearly around these. Jumping into products will only drive these people away.
  • Recognise their concerns and address them: One of their big concerns is outliving their assets in retirement. Show them what this means in terms of the war chest they need to accumulate. Build into this picture their other concerns of funding education and leaving a legacy. Show them the size of the challenge – they will appreciate your candour!
  • Be knowledgeable: HNW people are usually quite smart and have knowledge of a broad range of areas, as well as an ability to research topics on the Internet etc. They need to feel they are dealing with an expert. If there are highly technical areas in which you are not an expert, you need to build up your own trusted network of experts that you can seamlessly tap into for specialist advice, to ensure you are the conduit for your client gaining a holistic solution.
  • Add value: Add value to them, when you are not “on the clock”. If you see an article that would be of interest to them, send it to them. They will appreciate your ongoing and continuing interest in their affairs.
  • Be transparent: HNW individuals will expect full transparency from you in relation to all areas of their dealings with you. If they feel you are not being 100% open with them, they will quickly lose trust in you and will go elsewhere for advice.

These are a few thoughts in relation to increasing your chances of success with this important segment of the market. Is there anything else that you’ve found? Please feel free to leave your comments below.