What’s the future of cashflow modelling? Our predictions for 2021
What’s the future for cashflow modelling, and what does 2021 have in store? Here are some thoughts and predictions for how cashflow might develop this year
While the capability and popularity of cashflow modelling has increased in recent years, some of the key questions haven’t changed.
- Should the sector be regulated?
- Should cashflow be compulsory in a suitability report?
- How can a client’s aims and objectives be distilled into numbers and charts?
These debates are unlikely to go away in 2021. So, here are some of our thoughts around the way cashflow might develop this year.
Our predictions for 2021
A recent Intelliflo/i4C survey of more than 300 financial advisers found that only 35% of them offered cashflow modelling to all their clients.
Clearly, therefore, there is a huge opportunity to incorporate cashflow into the overall advice process. In 2021, we expect to see a shift as more firms begin to use the tool with all their clients.
We think there will be less ‘cherry-picking’ of who should get it and who doesn’t need it.
As more and more planners gain confidence in using cashflow modelling, we also think that 2021 will see a growth in the number of advisers using the tool live in client meetings.
The survey found that just 22% of advisers used cashflow live with all clients. A quarter only used it as an internal tool and never in a live environment.
Considering how engaging the tool can be in client meetings, it seems logical that more and more advisers will see and understand the benefit of using the tool in this way.
In general, we expect to continue to see user numbers go up across all tools. As the industry focuses more on financial coaching and the education of clients, we will see more planners using cashflow to demonstrate what good habits look like. Indeed, we have previously looked at how cashflow can support the work of a financial coach.
Finally, the survey found that half of all advisers worked in a firm where fewer than 70% of advisers and paraplanners used a cashflow modelling tool. In 2021, we expect firms that dabble in cashflow (some advisers use it, some don’t) will get more consistent and roll it out across all advisers.
The ongoing question of regulating cashflow modelling
One question that will continue to be asked is: should cashflow modelling be regulated?
Writing in Money Marketing recently, Justin Cash said: “Advisers looking for a firm steer on how they should or shouldn’t be using their favourite tool are often left disappointed.” He added that, if you search for ‘cashflow modelling’ in the online version of the FCA’s handbook, you’ll find just four results.
There has been a little more commentary when it comes to DB pension transfers. In its latest transfer review, the FCA found some examples of where cashflow modelling had been “used in a way that could be misleading,” including where inflation wasn’t explained properly, or tax bands weren’t indexed.
So, firms producing a cashflow for a DB transfer must now model in real terms in line with the Consumer Prices Index inflation rate. The model should also include stress-testing scenarios to enable the client to assess more than one potential outcome.
All in all, the FCA, strictly speaking, does not regulate cashflow modellers and has shown no real signs of doing so. However, it could become involved in 2021 if it started seeing unsuitable recommendations made by advisers on the back of a cashflow model.
“So ingrained in the process of planning”
Should cashflow be charged for as a separate service? As Money Marketing argue: “After all, the higher the volatility or the more that things change, the more time and effort the adviser must spend in rerunning the cashflow as part of the ongoing advice process.”
Advocates of cashflow modelling argue that advisers should not charge separately for cashflow modelling. Paul Armson, an advocate of lifestyle financial planning, argues that cashflow is so ingrained in the process of planning that it should be part of the overall fees.
He argues that if the profession wants to move on from a sales culture – one that is focused on products, not solutions – it needs to treat cashflow as a tool to get the job done rather than as a product in its own right.
Of course, just because you’re charging doesn’t mean cashflow modelling doesn’t add value. We talk often about the life-changing power of cashflow modelling, and how seeing their future mapped out ahead of them is one of the most transformative things a client can take away from a meeting.
In our survey, two-thirds of advisers told us that their clients had experienced significant changes to their plans because of Covid-19. So, there’s never been a better time than 2021 to provide reassurance and truly engage with clients about their future.
To chat to one of us about the benefits of cashflow modelling, email sales@i4C.technology or call 020 3308 9448. Alternatively you can sign up to a free 30-day trial.
This article was written by Rob Tedder, Client Cashflow Solutions Manager at i4C.