Much of what you believe about cashflow modelling is wrong. Here’s why
Over the years, we’ve heard all the objections to cashflow modelling. Here’s why it isn’t expensive, complicated or only for wealthy clients.
We’re told it’s too complicated, too time-consuming and too expensive.
We’ve heard that it’s not ‘for our clients’ and that it’s only worthwhile for wealthy or older clients. We’ve even heard that it’s only for advisers who ‘want to sell products’!
The truth is that cashflow modelling can strengthen your client relationships, minimise your compliance burden, and maximise fees and profitability.
We’ve produced a comprehensive guide debunking ten of the most common myths we hear about cashflow modelling – head here to read it.
In the meantime, here are a few of the popular myths, and why much of what you think could be wrong.
1. It’s too complicated and the outputs are too difficult to understand
Many advisers and planners are worried that the sheer range of options available through cashflow modelling tools are simply overwhelming. Graphs and tables seem daunting, and advisers are not confident of presenting these to a client.
The opposite is normally true.
The market-leading modelling tools are designed to provide engaging infographics that explain concepts and scenarios. It’s often easier for a client to visualise an outcome using a graph than it is for them to understand your explanation.
Using graphs that show future income and expenditure, or the impact of advice on a tax liability, changes the relationship you have with your clients. Your meeting becomes part of a long-term relationship, not just a business transaction.
“Cashflow modelling is brilliant for us as a business. It is so easy to use, even for a technophobe like me! Using cashflow modelling has brought us into the 21st century. It has enabled our client review meetings to be a lot more productive as we help our clients to plan for their future. It serves us really well.” – John Eastwood, Eastwood Financial Solutions
2. It’s only for wealthy clients
As a financial adviser or planner, you know that many of the most important financial questions don’t depend on wealth.
- Can I afford to send my child to university?
- Can I retire when I want to?
- Can I afford to save or invest more?
- What would I do if I couldn’t work due to ill health?
- Will I have enough to live on when I retire?
What this means is that there are very few who would not benefit from some level of cashflow analysis.
A robust financial plan creates a sturdy framework on which to build these plans. So, irrespective of wealth, robust cashflow modelling software will make it easy to model these with side-by-side comparisons.
3. Clients just don’t care
Clients can sometimes struggle to understand how their finances may change over time. Factoring in tax, investment growth and other variables can make the idea of ‘do I have enough?’ difficult to comprehend.
Cashflow modelling gives a client a visual representation of how their finances will look, from now through early retirement into their later years.
Seeing a visual representation of their financial position makes it far easier for them to grasp how their wealth will be affected over time, the level of income they can afford to take, and the impact of factors such as tax and stock market volatility.
“Our clients feel more engaged in their financial future. Shortly after being in lockdown, an existing client requested an early retirement forecast. Via a shared screen I was able to model a range of different ‘what if’ cash flow scenarios and outcomes. They were delighted that we had this functionality. Even more so when the outcomes confirmed that based on the agreed assumptions, retiring early was a real possibility.” – Martin Rivers, Director, CBK Wales
Showing clients this type of information in a visual way can be genuinely life-changing.
Why would a client not care about that?
4. It makes compliance more difficult
This really is a myth. The truth is that cashflow modelling can actually ease your compliance burden.
- Ensure advice is robust and stress-tested
- Save time via a transparent audit trail
- Minimise errors – single point of entry
Drive a consistent approach across your firm.
You can use a cashflow modelling tool to help accurately determine a client’s risk profile. A risk-based cashflow forecast can demonstrate the amount of loss a client can financially withstand and therefore the amount of risk they can take.
You can also evidence that you have carried out regular reviews with clients, proving an ongoing level of service.
5. It’s expensive
The true power of cashflow modelling comes from using it live and interactively with clients. Software that is easy-to-use and engaging can really demonstrate the life-changing effect power of financial planning. It will highlight the significant financial benefits – in terms of tax or returns – that this approach can take.
There are huge revenue opportunities that can be created by using cashflow modelling properly:
- Win new clients
- Differentiate your business from rivals
- Encourage more long-term relationships
- Justify fees
- Increase overall revenue
- Grow strategic partnerships with introducer firms.
Using integrated, intuitive cashflow modelling software can also help to make your business more efficient.
Proper integrations with minimum manual intervention maximise efficiency – for example, i4C integration with Intelliflo is slick and straightforward, and there’s no cost for integration with Intelligent Office (iO). Accurate data in iO ensures accurate data in i4C, speeding up the time it takes to build a cashflow plan for clients.
Of course, improving efficiency means your firm can take on more clients and increase overall revenue.
This article was written by Carly Robbins, Client Cashflow Solutions Consultant.
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