7 tips from the experts to nail cashflow modelling first time

, 30 September 2020

Nail cashflow modelling first time

Want to know how to nail cashflow modelling first time? Here are 7 tips from the experts to help you get the most out of cashflow discussions with clients

We often hear that cashflow modelling is too complicated, too difficult to explain, and that clients just don’t get it. Indeed, we’ve previously looked at why much of what many financial planners believe about cashflow modelling is wrong.

The truth is that, used well, cashflow modelling is a tool that adds real value. It demonstrates the value of your advice, supports long-term client relationships, and helps clients to take real ownership of their financial plan.

So, if you’re looking to get the most out of cashflow planning, here are seven expert tips that will help you to nail it first time.

1. Keep it simple

At first, it can pay to keep things simple. Don’t over complicate the client’s current situation or the first year of the plan.

Cashflow planning doesn’t have to be complicated. Your chosen tool should be user-friendly, intuitive, and easy to integrate into your processes. And, when inputs and outputs are displayed logically, it will transform client understanding. If clients can see the direct effect of your advice, it can be hugely powerful. If you want to see how i4C works, watch our demo here.

Navigation menu

Easy to use navigation menu

2. Model ‘what-if?’ scenarios

The beauty of cashflow modelling is that you can use scenarios to model ‘what-if?’ and bucket list items as well as anything that isn’t a hard fact.

You know that you constantly add value to your client’s plan. However, in difficult investment climates, judging performance solely on investment returns could put you at a disadvantage. How do you demonstrate the value of your advice?

However, with compound growth over many years, a simple piece of planning advice today could have a seriously positive impact on a client’s investment and tax positions. Often, this will significantly outweigh the cost of advice.

Modelling these scenarios helps you to show the client in black and white just how beneficial your advice can be for their future.

3. Invest time at the outset

If you plan to incorporate cashflow modelling into your processes, it’s important that you do this consistently and effectively.

So, it’s worth investing a few hours at the outset putting together an internal ‘compliance guide’. This ensures that the process is consistent and repeatable for all clients.

4. Use reasonable and realistic assumptions

It might sound obvious, but the better your inputs, the better the outputs. So, it’s important that you use sensible and realistic assumptions, most notably for investment growth.

The idea of cashflow planning is that you’re helping clients to have confidence in the plan you have put in place. It’s hard to do this if you’ve been wildly optimistic about the assumptions that underpin the plan.

5. Get your clients engaged

Clients can sometimes find it difficult to understand how their retirement provisions will change over time. Cashflow modelling illustrates how factors such as tax, stock market volatility, and investment growth affect their wealth. The graphs and outputs are refreshingly straightforward, making it both easy to understand and engaging for your clients.

Cashflow Graph

An example of an i4C graph

It also helps intergenerational families understand the process, so advisers can form long-term relationships with younger clients through accessible financial planning.

Rather than you giving advice and your client choosing whether to accept it, cashflow modelling makes your client feel part of the financial planning process. So, the earlier you can get your clients engaged as part of the process, the more value it can add.

6. Apply it to all income levels

There are very few clients who would not benefit from some level of cashflow analysis. Your clients don’t need significant assets to want to know whether they can afford to send their child to university or whether they will have enough money to live on when they retire.

Cashflow modelling can help you answer everyday questions surrounding pensions, mortgages, and Inheritance Tax – irrespective of a client’s income or wealth.

7. Ask thought-provoking questions

When you meet a client, it’s important to prepare some thought-provoking questions:

  • What do they want to do when they retire?
  • What is on their bucket list?
  • What legacy do they want to leave to their heirs?
  • What would they do if markets crash?
  • How would they pay for later-life care?

As part of the process, it’s also important that you encourage your clients to ask questions back. As we have seen, engaging clients in the process means you can show them different ‘what-if?’ scenarios and demonstrate the benefits of your advice.

To chat with one of us about the benefits of cashflow modelling, email sales@i4C.technology or call 020 3308 9448.

Or why not start your 30 day free trial?

This article was written by Carly Robbins, Client Cashflow Solutions Consultant at i4C.