Investments  

Cash flow modelling proves popular with advisers

This article is part of
Guide to building your business post-pandemic

Cash flow modelling proves popular with advisers
 Credit: Markus Spiske via Pexels

As the pandemic has brought a sharper focus on finances, cash flow modelling has become a greater feature within conversations, although its rise in popularity dates back a few years before the start of the crisis last year.

A poll by Intelliflo back in January found that that cash flow modelling technology was the most popular tool for helping clients meet their long-term goals, with 70 per cent of advisers and paraplanners in agreement. 

Almost nine in 10 respondents (88 per cent) agreed that cash flow modelling helped demonstrate the value of advice to clients and that clients felt more engaged in the financial planning process as a result of using this technology. 

Features such as ease of use, graphs and reports, and in-built tax calculation are seen as the main benefits of cash flow modelling tools.

Two-thirds (67 per cent) agreed that cash flow modelling had helped to reduce client worry during the pandemic, and almost all respondents (92 per cent) agreed that cash flow modelling helped clients to understand the effects of significant market movements on their future plans and that they may need to make compromises over time to reach those objectives.

Changing circumstances

Scott Gallacher, director at Rowley Turton, says: “The pandemic has changed people’s situations. Furlough was a bit of a trial retirement: you are stuck at home and still getting paid but not going to work, so it is very much like being retired. 

“During the the early part of the pandemic we were probably amending people’s cash flow plans [who wanted to retire early], but then as the pandemic and furlough wore on, they were less keen on retiring, wanting to return to the original plan of working up to a certain point.”

Gallacher adds: “Big events like the pandemic throw up pluses and minuses for people and as a financial planner we are trying to help people plan their life.”

Last month, Simon Goldthorpe, joint executive chair of Beaufort Group, said that advisers needed to double down on cash flow modelling as the answer to a "surge" of clients facing financial hardship in the wake of the coronavirus crisis.

Cash flow modelling has been used by many advisers, particularly in the retirement space.  

Advisers find it useful to model different scenarios and bring to life the impact of different decisions, such as retiring early or making a significant purchase.

During the past year, Amanda Cassidy, managing director of Quilter Financial Advisers, says she has seen some changes in advisers' approach to cash flow modelling.

In the early months of the pandemic when markets were low it was really important to demonstrate the impact of sequencing risk for clients drawing an income from their investments.