Lifetime cash flow modelling is aimed at individuals who wish to become and remain financially well organised, determine lifetime goals, create a lifetime cash flow plan and control their tax liabilities.
According to Neil Bailey, director and financial planner of Northamptonshire-based Fortitude Financial Planning, a lifetime cash flow plan should enable an adviser’s client to:
• Produce a clear and detailed summary of their financial arrangements.
• Define their family’s version of the ‘good life’ and begin working towards it.
• Work towards achieving and maintaining financial independence.
• Ensure adequate provision is made for the financial consequences of the death or disablement of themselves or their partners.
• Plan to minimise their tax liabilities.
• Produce an analysis of their personal expenditure planning assumptions, balancing your cash inflows and their desired cash outflows.
• Estimate future cash flow on realistic assumptions.
• Develop an investment strategy for their capital and surplus income in accordance with risk/reward, flexibility and accessibility with which they are comfortable.
• Become aware of the tax issues that are likely to arise on their own death and that of their partner.
Mr Bailey says: “With every financial corner you turn it is important to ‘run through the numbers’, which will help you make the right financial decisions.
“Cash flow planning is vital if financial goals are to be achieved. It is important to be specific; for example, it is not enough to say “I want to have enough to retire comfortably”, you need to think realistically about how much you will need.
“The more specific you are, the easier it will be to come up with a plan to achieve your goal.”
Rebecca Taylor, president of the Institute of Financial Planning, says the conversations with the client are vitally important to establish the client’s needs and objectives, both over the shorter and longer terms.
She says: “If the client’s needs are not accurately established then the cash flow will not be seen as personal therefore the client is unlikely to perceive value in it.”
In terms of how often the plan created by cash flow modelling needs to be reviewed, Ms Taylor says she finds that annually works well.
Ms Taylor says: “Some years there may not be any change, or just small ‘tweaks’ but other years there may be something significant; either way the client needs to have a discussion with you so that they know things are up to date and to keep their own peace of mind knowing their plan is still on track.”
David Gibson, director of County Londonderry-based Gibson Financial Planning, says it is vital that clients are made aware that certain assumptions have been made in the making of their plan.
He says projected inflation and growth rates need to be made clear and it should be explained that the plan/cash flow model is only as good as the inputted information so it is critical that it is reviewed.