Why cashflow modelling is for all clients, not just a few, by Jon Rolfe, Head of Product Advisory Board

1 August 2018

When I talk about cashflow modelling to other financial planners at events I attend, people sit in one of three camps. They’ve either embraced it fully, are apathetic towards the process or, occasionally, I hear people say they only use it with their most complex / remunerative clients. Whilst the conversations with those already engaged with the process are rewarding, I find it more so when I encounter someone who’s not engaged, either at all, or only in part.

Any business tool, whether it’s a cashflow model, a letter franking machine or a CRM back office system needs to either help you do your job more easily (thereby increasing your ability to generate fees) or needs to save the business time and, therefore, money. And what if it can actually improve fee generation directly.

The reasons I hear for people not embracing cashflow modelling vary from person to person but are often due to a less than satisfactory experience when trying a tool already on the market. I have heard the following many times:

“They are cumbersome and difficult to use so I rarely / don’t use it”

“I have to duplicate factfind information into a cashflow model so it slows me down”

“It’s just an advice aid for financial planners; it doesn’t help the rest of the business”

Having considered all the above, it’s no surprise that these financial planners also don’t consider using cashflow tools for other areas of the planning process, for example to model a client’s need to take risk or to accurately assess their protection needs; why waste time inputting data to a model that can only show you what you already know?

As a cashflow model advocate, I have contrary views on these statements, although I will concede that one or more have been true in the past in particular  “They are cumbersome, time consuming and difficult to use”.

I maintain that cashflow modelling software can be both easy to operate and therefore able to be used interactively with clients of all levels of complexity. Traditionally though, cashflow software fell into two categories. Some were time-consuming to learn and use and therefore daunting to a less tech-savvy user; others were easy to use but had limitations in terms of the complexity of planning they could support.

The holy grail was software which combines ease of use with the ability to provide complex advice if required. This holy grail is now becoming a reality, both through the existing players making positive advances in this direction as well as new software providers launching intuitive, interactive propositions.

“I have to duplicate factfind information into a cashflow model so it slows me down”

Modern software solutions allow a basic plan with some ‘what if’ scenarios to be produced in 10-20 minutes. If you can populate a cashflow model within your fact-finding meeting, you can make extraordinary time savings throughout the advice process (more later).

That point notwithstanding, there is actually a steady move towards integrating cashflow software with back office systems which further streamlines data collection and avoids unnecessary duplication of labour. In other words, an online fact-find could populate a cashflow, or vice versa.

Time is no longer an excuse not to use cashflow for all cases – simple or complex – and financial planners who think this way are missing a trick. The only real choice I see here is whether cashflow data collection becomes an integral part of the factfinding process or whether it is separate.

“It’s just an aid for financial planners; it doesn’t help the rest of the business”

Many paraplanners and administrators love cashflow software. The days are thankfully gone where I hand a few scribbled notes over for my team to decipher after a client meeting. With cashflow modelling, most of the conversation is captured within the software, allowing the team to focus on constructing advice and report writing rather than trying to clarify a detail. Clearly, facts within the model need to be checked and it’s possible to get things wrong with a client, but the more intuitive and easy to navigate the system is, the more chance there is of getting it right.

Compliance teams also benefit. It’s much easier for a Compliance Officer to ensure advice is considered and robust – or at least spot when it isn’t – when it’s reflected via an independent tool. Cases which traditionally came down to slim (and unmeasurable) margins can be independently assessed, providing a valuable audit trail.

So what else can cashflow models help you do?

If you agree with what I’ve said up to now, you should agree with the fact that cashflow models can facilitate a more engaging and informed discussion about all areas of planning.

Most, if not all, clients worry about money and the future. Cashflow modelling helps remove worry and reduces clients’ reliance on the trustworthiness of their planner without removing any client loyalty. By educating and engaging clients with the planning process via an interactive cashflow modelling meeting, the software allows clients to take control and see answers to the questions they have.

An engaged cashflow client then becomes reliant on this decision-making software and the person (or firm) providing it. If you employ financial planners and use cashflow software, you’ve more chance of retaining clients if the financial planners moves on due to their reliance on the software. If you run your own business, you are more likely to attain the all-important “trusted adviser” status.

To bring this to life, a long-term client of mine recently asked me to re-tender for their business. They pitched me against one of the large, high street banks with an advice arm. The bank had been trying to scare off my client from using us, telling him he needed a more corporate resource behind him, and he thought it prudent to hear what they say. My client chose to stay with me and when I asked him why, he said ‘Jon, I just couldn’t lose the graphs’. Although my ego was slightly bruised that it wasn’t my charm he appreciated, I was nonetheless satisfied that he was fully engaged with our proposition. Without the software, I could easily have lost him.

Investment risk

Capacity for loss is an area which has been highlighted as being particularly inconsistently assessed across the industry. There is an argument that a client’s capacity for loss can only really be assessed via a modelling exercise. How can you really assess how much a client can lose unless you at least take a view on their likely changing inflows and outflows for the rest of their life and any emergency levers they could pull? There have been increasing calls to make capacity for loss modelling a mandatory element of the advice process and I would strongly support this view.

Linked to this is the need for a client to take risk. Financial planners are now very familiar with working through risk profiling tools to establish a client’s willingness to take risk but assessing the client’s need to take risk is often overlooked. If a client’s life goals can be achieved by adopting a lower risk profile than their willingness indicates, this should be an important discussion point between financial planner and client. Again, the only authentic way you can assess a client’s risk need is via cashflow modelling.

I recently had a client whose willingness to take risk was assessed as ‘balanced’. We established that they could meet their life goals whilst remaining in cash. Although they eventually compromised and invested in a ‘cautious’ manner to make the money “work for me”, the important thing is that they made an informed decision they couldn’t otherwise have made.

If financial planners are mandated to model capacity for loss and assessing risk tolerance, it’s essential that financial planners do not treat this as “another compliance hurdle”. It’s an opportunity to realise the full benefits that cashflow modelling offers.

Cashflow helps to demonstrate protection needs

There are many ways to calculate a protection need and each financial planner will have their own preferred approach. Unfortunately, many clients view protection as just another expense they could do without.

Financial planners who do not use cashflow software for protection will often look to protect their client’s obvious liabilities and then perhaps have a surplus of other funds on which to live. Whilst this simpler for both client and financial planners, my experience is that this method can leave the client wondering if they really needed that level of protection and are therefore being over or under insured. It’s difficult for financial planners who doesn’t use cashflow software to help the client answer this question and it can often lead to a client not proceeding.

Using statistical scare tactics to instigate action is still widely used by some, cashflow modelling offers a better way. It provides a method of visually showing the client the protection they require in order to maintain some semblance of their current lifestyle. Most importantly, it shows the sceptical client the impact the cost would have on their finances if they were to take out cover and not claim. Some software currently available can produce four engaging graphs which show:

Current situation assuming no premature death (hopefully a rosy picture)
Main earner dying or incapacitated without protection in place (the picture quickly looks grim)
Main earner dying or incapacitated with enough protection in place to leave a predefined liquid asset target (the client is ok)
Not dying but having the policies in place (rarely a noticeable difference to chart 1).

Again, the use of the model opens up a discussion with the client and the client feels they own the decision. Deciding on the residual liquid asset value target helps determine the level and type of cover needed, which in turn informs a discussion around the cost of cover and its impact on their hopes and dreams. When it comes to formal recommendations, I’ve found that clients are much more inclined to proceed.


Cashflow modelling has many benefits. But its real power is maximised when a firm focuses its client proposition around it rather than using it on a selected case-by-case basis. Given the progress made in this area, there’s really no excuse not to anymore.

This article was published on pages 11 & 12 in FP Today http://flickread.com/edition/html/free/5a5f7d9179359#1