The journey to a new cash flow planning system

15 January 2019

When Epoch Wealth Management was set up in 2010, the team knew from the start that they didn’t want to be just another investment adviser.

They already had a number of clients who were after more than that; clients who were willing to pay good fees for true long-term financial planning. It was from that starting point that Epoch’s journey to build a cash flow planning application began, and which led to the creation of the i4C business of today.

As Epoch partner Jon Rolfe says: “We knew cash flow planning had to be central to our proposition if we were to differentiate our service and attract valuable long-term client relationships.”

Initially, like many before and since, the team started off developing increasingly complex spreadsheets. While offering transparency, the spreadsheets quickly became unwieldy and added significant risk to the advice process. It was clear a more robust solution was required.

The team, made up of financial planners with varying levels of technical ability, reviewed the available software but couldn’t find a system that could be used by all their advisers for all their clients.

Yet although the spreadsheets had their limitations, they were an important part of the product design and early stage road map which led to where we are today. The process also allowed the team to understand what computations and features they really needed to manage and develop client relationships.

The design phase

Epoch decided to invest in building their own cash flow planning application with a number of key design principles at the core:

  1. Be sophisticated enough to deal with all areas of financial planning
  2. Be easy-to-use and reduce the time required for client set-up
  3. Support face-to-face client meetings
  4. Be transparent so decisions can be made with clarity and purpose
  5. Be visually impactful and encourage clients and planners to engage in long-term planning conversations
  6. Support the firm’s drive towards consistency and control in the use of assumptions across plans

The biggest decision Epoch faced was whether to invest significant additional time and resource in developing detailed tax computations. Some argued against this as they were happy to consolidate assets and produce projections with an assumed net of tax position.

Keen to investigate the issue further, the firm commissioned a report into the advantages of including tax as part of the system. The report found:

  • Tax is not linear – Tax rates on investment growth, interest and dividends will vary year-by-year based on the client’s circumstances at that point
  • Not including tax increases the risk of error – It would be easy for an adviser not to factor in a particular tax or calculate it incorrectly outside of the plan
  • Demonstrating value – Most significantly, much of Epoch’s advice was tax-related. Without detailed tax computations, they wouldn’t be able to demonstrate and quantify the lifetime value of their planning.

Epoch realised this third element would become more important in the years to come, with clients becoming more aware of fees post-RDR. What’s more, with investment yields starting to fall, portfolio structure and effective tax management were set to become increasingly important and would play a much greater part of the planner’s role.

With this in mind, Epoch decided they had no choice but to ‘do it properly’ and develop a comprehensive tax-based application.

The timeline to now

In 2015, the intellectual property of the model was spun off into a separate company with the intention to eventually take it to the wider adviser market. A small technology team was hired to build the cash flow planning application based on the key principles Epoch had set out and using the same detailed logic and decision-making that had previously sat behind their spreadsheets.

In 2016, the first version of the i4C cash flow application was born, with the software rolled out to Epoch clients over the following months.

Epoch managing partner Barry Newbury describes this as a pivotal moment for the business, with client engagement, quality and fee-generating potential all increasing further.

The client engagement element was crucial as it demonstrated the potential for the cash flow planning software to transform the client/ adviser relationship from one based purely on personality and trust to being able to see the impact of the decisions clients were being asked to make. This, in turn, increased the loyalty of new and existing clients and, consequently, the fees generated over time per client.

Earlier this year, the business raised funding from a group of angel investors and appointed an independent management team to run and develop the business (of which I am a part).

The technology team recruited has considerable experience in a number of sectors, most recently taking hosted software applications into the tough environments of retail and law enforcement.

These sectors require accurate information, reliability and ease of use, not to mention robust security. The team have brought that crucial experience into i4C.

We have sought to develop the business further through a rebranding exercise, as well as an updated version of the application. Jon Rolfe and Barry Newbury remain on the board as non-executive directors but have taken a back seat in terms of the day-to-day running of the business.

We remain guided by four key principles. Everything we do must lend itself to enhancing features and ease of use – I don’t believe these are mutually exclusive.

We want our cash flow planning application to be visually engaging and let the planner lead the client through a journey and evolve that together.

And tax remains key to what we do. Our research has proved to us that financial planning and tax planning cannot be looked at separately.

Ultimately, as we look to develop the business we are determined to remain true to our roots –  an application developed by financial planners, for financial planners.

This article was written by i4C CEO Mark Harman, for the Illuminate blog  https://illuminate.nucleusfinancial.com/blog/journey-new-cashflow-modelling-system