Cash flow modellingMore than just a fancy chart

“A professional service for clients who need objective assistance in organising their financial affairs to achieve their financial and lifestyle goals”

Institute of Financial Planning

Is cash flow planning compulsory?

Focus on...

• The importance of the cash flow process

• How to engage clients in the discussion

• Sharing best practice

• The benefits to the client

Those that can’t see the future.....

Those that can’t see they can’t see the future.....

Lifetime planning

Estate planning

Savings strategies

Investment risk

Shortfalls

Getting real

Creating ways to help people make more sense of money

Framing

Context

Engagement

“Financial plans are worthless”

“The process of planning is invaluable”

Planning process1. Establish goals & objectives

2. Gather data

3. Analyse information

4. Develop plan

5. Implement plan

6. Monitor and adjust

Best practice

“One of the keys to successful financial planning is learning to let go of precision.”

Carl Richards @behaviorgap

Things in common

• Clear service proposition

• Platform & investment process

• Agendas

• Great questioning skills

• Charge

• Team approach

Key roles

Adviser Paraplanner

Leads relationship Gathers data

Presents plan Analysis

Provides advice Prepares plan

No objectives..no plan!• Clear & concise

• Prioritised

• Timescales

• Agreed & written down

• Reviewed regularly

Financial objectives• Increase my spendable income

• Pay less tax

• Improve retirement income

• Increase investment returns

• Pay off mortgage

Emotional objectives• Increase my financial security

• Achieve financial independence

• Safeguard my family

• Understand more about my money

• Give more to charity

As a minimum maintain the lifestyle I want under any circumstances however long I live

Useful questions• So what?

• Why?

• What would need to happen for...?

• Can you afford to do the things you want?

• Do you have enough time to do them?

• What would make you feel uncomfortable?

• What would make you panic?

Lifestyle planning• Define it

• Cost it

• Fund it

• Transfer surplus

• Manage risk

• Be tax efficient

Assumptions• Inflation

• Earnings growth

• Investment returns

• Tax

• Mortality

• Capital conversion

Real value of money

Assumption Notional Real

NAE 4.5% 1.5%

Savings 2% -1%

Investments 6% 3%

School fees 6.8% 3.8%

House prices 3% 0%

Assumptions

In principle, simply as a planning assumption.....If you can’t fault the assumptions, it’s reasonable to accept the conclusions......

Net worthAsset Value

Property £500,000

Cash savings £68,000

Investments £142,000

Business interests £250,000

Personal effects £50,000

Pension funds £230,000

Total £1,240,000

Liquidity ratio

21%Cash & investments

£210,000

BudgetSource Amount per month

Fixed expenses £2,000

Variable expenses £1,500

Total expenses £3,500

Net income £4,500

Disposable income £1,000

Spendable income ?????

Cash flow in action

Show client.....• If on target

• What return is needed?

• How much more ..... is needed?

• When (or if) they can stop work

• How much they can give away

• Capacity & tolerance for loss

Making sure you don’t run out of money!

Multiple scenarios• If all goes to plan

• Someone dies

• Serious illness

• Retire early

• Sell business

• School fees planning

Risk profiling

A solution• Robust, repeatable process

• In-depth discussion

• Full understanding of all risks

• Don’t rely on risk profile tools

• What return is needed?

• Is any risk needed?

• Capacity & tolerance for loss

Investor behaviour

“We took risks, we knew we took them; things have come out against us, and therefore we have no cause for complaint.”

Robert Falcon Scott

Cash flow tools

The market

The market

Certior

Truth

Voyant

Dynamic Planner

PlanLab

Moneyscope

Excel

Calculator

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Calculators

Calculators

Excel

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Benefits• Better client relationships

• In control

• Greater fee income

• Generational planning

• No market moans!

A good read

Focus on...

• The importance of the cash flow process

• How to engage clients in the discussion

• Sharing best practice

• The benefits to the client

www.moneyscopehq.com