Your IndustryFeb 15 2014

Getting to grips with a cash flow model

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

David Gibson, director of County Londonderry-based Gibson Financial Planning, says he has yet to meet someone who could not benefit from cash flow modelling.

Cash flow modelling is a financial planning tool that helps an adviser recommend the best course of action for the client and determine the right asset allocation.

Danny Cox, head of financial planning at Bristol-based Hargreaves Lansdown, says cash flow modelling shows the client their current position relative to their preferred position and their goals.

He says: “A cash flow model is normally understood to be a detailed picture of clients assets, investments, debts, income and expenditure, projected forward, year by year, using assumed rates of growth, income, inflation, wage rises and interest rates.

“Focused cash flow could be as simple as a pension or savings calculator. Cash flow modelling works for all of those who are prepared to engage with the process.”

Rebecca Taylor, president of the Institute of Financial Planning, says where cash flow modelling becomes particularly useful is where advisers start modelling different scenarios based on decisions that clients may make.

She says: “This may be lifestyle choices or perhaps investment decisions.”

Ms Taylor agrees that cash flow modelling works for pretty much anyone.

She says: “While most people expect that it is used for those with wealth to help them manage it and make sensible decisions, it is great for those accumulating wealth due to the ease with which we can arrive at decisions on how much needs to be saved and the return required.”

David Crozier, director of County Down-based IFA Navigator Financial Planning, says by matching a client’s present and expected future liabilities with their income and capital an adviser can make recommendations that will “ensure the client doesn’t run out of money before they run out of life.”