Your IndustryFeb 15 2014

Selecting cash flow modelling software

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Rebecca Taylor, president of the Institute of Financial Planning, says while advisers may wish to subscribe to specialist software, they can also build the an effective cash flow modelling tool for themselves using a simple spreadsheet program such as Microsoft Excel.

She says: “My advice would be to use whatever you are comfortable with using.”

If an adviser does decide to buy software, Ms Taylor recommends having a meeting with any potential providers, adding there are not many suppliers of this technology “so it shouldn’t be too difficult.”

Ms Taylor says: “An important consideration would be which one you understand most. It is vital that you understand how the inputs are turned into outputs.

“You will not find it much use if you can not explain to a client how various figures have been arrived at.

“As well as finding out what the system does and how it works, look at how easy it is to access, whether you can use it remotely if you travel to see clients, for example.”

David Gibson, director of County Londonderry-based Gibson Financial Planning, recommends getting a demonstration of a few systems and spending time testing the software with real client scenarios.

He says: “You will soon work out what suits your target market the best.”

Ultimately the software system you opt for depends on what your expectations are of cash flow modelling.

Neil Bailey, director and financial planner of Northamptonshire-based Fortitude Financial Planning, says he sees cash flow modelling as a way to establish a client’s risk profile.

Mr Bailey noted Voyant and Truth have “the highest profiles” for their cash flow modelling software.

He says before buying a system an adviser should invest some time speaking to other users in order to understand the pros and cons – including quality of training and support. Advisers also need to consider how they intend to use the software - such as whether they plan to meet clients in the adviser’s office, at the client’s home, or place of work, etc.

Mr Bailey says his company uses Finametrica, which is a psychometric questionnaire, in order to establish risk tolerance - but he argues it is impossible to establish return required (i.e. risk required) and risk capacity in any meaningful way without using a cash flow model.

Mr Bailey says: “The needs of different individuals can vary enormously. A 55 year-old expecting to purchase an annuity at 60 is unlikely to be willing to risk the capital in their pension pot, so they may choose to accept a lower return in exchange for greater security.

“A 25 year-old with far less capital may be willing to accept much higher risk in the hope of benefiting from higher growth.

“There is also individual appetite for risk to consider. But of course it is not actually the risk that people hunger after, it is the potential rewards – and investors should think carefully about what they are willing to put on the line before they go chasing them.”