Cash flow modelling 'essential' for advice process

Research by the adviser software provider found the use of cash flow modelling software has become an intrinsic part of the adviser's client service, with 67 per cent of respondents stating it has become "essential" to the advice process.

This is particularly the case since the Retail Distribution Review (RDR) came into force. The research was carried out in June this year among senior executives of some of the UK's largest advisory firms, representing more than 11,000 individual financial advisers. 

Comments provided to Focus Solutions as part of the study said using modelling software with clients had become more important post-RDR, so advisers could "provide clients with goals based financial planning support rather than selling a product".

One respondent said: "Most will use the tool in the arena of pension planning (drawdown etc), but a few firms have committed to offering a holistic approach."

For those who do not use cash flow modelling, the firms either have their own systems, such as Excel-based planners, or the client does not require the use of it. 

It’s useful for illustrating an often-complex financial plan for clients and increasing client engagement. Tom Conner

The Focus Solutions research also found that, of those who do use cash-flow modelling analysis, the choice of tool depended equally on the ease of use and quality of the graphical images, with 29 per cent of respondents citing each reason equally. 

Other important factors included cost and integration with the existing platform, and the ability for the client to engage with the process. 

Steve Andrews, head of managed services at Focus Solutions, said: "Cash flow modelling tools are becoming more widely used within advisory firms, supporting both lifetime holistic planning services as well as supporting specific activities such as identifying a customer’s capacity for loss.

"Historically, cash flow tools have been quite complex and hence not something which was easily adopted within advisory firms and using tools interactively with customers wasn’t common practice.

Earlier this year, Focus Solutions launched now:plan Cash Flow 2.0, a cash planning tool designed for advisers with ease of use and comprehensive functionality at the forefront. It uses Moody’s Analytics to build in more informed growth rates.

Mr Andrews added: "We designed it so users could model and compare multiple complex scenarios quickly and easily through a user-friendly interface.

"Having a tool that can be used with customers face to face and in remote co-browsing sessions has seen it being more widely adopted in initial customer meetings and within ongoing reviews."

He warned that as the trend towards cash flow modelling continued, firms which do not engage with such tools risk "going backwards". 

Tom Conner, director at advisory firm Drewberry Wealth, commented: "Cash flow modelling enables advisers to demonstrate the value we add as advisers through thorough, managed, objective-based financial planning and it is an integral part of the advice process.

"It’s useful for illustrating an often-complex financial plan for clients and increasing client engagement, bringing to life the effect that decisions will have on their future financial position."

simoney.kyriakou@ft.com