Cashflow modelling: who’s it for?

Busting the top 4 stereotypes

Cashflow modelling benefits all clients in all circumstances. How?

• It helps clients to visualise the impact of financial decisions
• It encourages regular saving
• It enables clients to ‘see’ the future
• It gets clients thinking about the bigger picture, goals and ambitions
• It encourages regular reviews and a long-term approach

Building and stress-testing your client’s financial plan in a visual way can be genuinely life changing, whatever their life stage. So why do some stereotypes persist about who cashflow modelling is and isn’t ‘for’?

Here are four common cashflow modelling stereotypes, explored and debunked.

1. It’s only for wealthy clients

There are very few who would not benefit from some level of cashflow analysis.

You don’t need to have significant assets to want to understand whether you can afford to send your child to university. Or, to know that you’ll have enough money to live on when you retire.

Some of the most common and important client questions don’t depend on wealth:

• Shall we invest more in our pension, or pay off the mortgage?
• What impact would we see if we decided to downsize when we retire?
• Will there be an Inheritance Tax bill to pay?
• Can I afford to save or invest more?

None of these questions can be answered accurately with a simple calculation. Every client is unique. There are factors in their financial situation that will shape the best path forward.

A robust financial plan creates a sturdy framework on which to build these strategies. So, irrespective of wealth, robust cashflow modelling software will make it easy to model these with side- by-side comparisons.

2. It’s not for young people

As we’ve just seen, many of the most important financial planning questions aren’t affected by a client’s wealth – and the same is the case when it comes to their life stage.

• What are your life goals and ambitions?
• Will you be able to afford your lifestyle in retirement?
• Have you a financial cushion in place if your plans are unexpectedly blown off track?

Good fact-finding and cashflow modelling can help younger clients to understand their income and expenditure and to identify whether they are living beyond their means – or if saving a bit extra is perfectly possible.

Cashflow modelling can demonstrate to younger clients the importance of pension saving as early as possible. It can also show them how saving tax-efficiently can help first-time buyers to build up a deposit more quickly, and highlight the need for insurances to protect them against death or illness.

By using cashflow modelling with younger clients, you can forge relationships that could still be generating fees for you for decades to come. And, it’s also a really powerful way of ensuring the children of current clients develop a long-term relationship with you, because it helps you engage all family members in the intergenerational planning process.

3. It’s only for clients who want to buy products

It’s important to remember that cashflow modelling is a means to an end. It’s not the end itself. It is a tool designed to help you and your clients to visualise future outcomes, and to make decisions based on educated and robust forecasts.

Cashflow modelling enables you to create different financial scenarios. You can then compare the effects of multiple strategies on outcomes. It’s designed to support a process which involves:

• A simple but effective financial health check
• The rigorous stress testing of advice
• An easy, clear demonstration of the benefits of advice over time

From this point of view, it’s really not designed for ‘selling’. There’s nothing in the software that identifies whether a client needs an ISA, and in which fund they should invest.

Cashflow modelling is designed to integrate all areas of financial planning with a client’s objectives and to illustrate a single, coherent life plan. This transparent approach bolsters confidence on all sides, nurturing long-term client satisfaction, loyalty and referrals.

Cashflow modelling doesn’t have to be complicated.