An adviser’s view of cash flow planning and its role in modern advice

An experienced IFA highlights the important role of cash flow modelling, and how the best planning tools can help advisers to provide the clearest picture yet of their clients’ financial future.

‘I have been in the financial advice business for thirty years, but I’ve probably been giving proper advice for two and a half years, total — since when I started using cash flow modelling software,’ says Mark Stewart, director of Sheards Wealth Management, a firm of Independent Financial Advisers (IFAs) in Huddersfield.

‘It’s a bit embarrassing for a lot of financial advisors, in all honesty.

‘There are still a few advisors who say you don’t need it, but all the ones who’ve actually used it and understood it, I don’t think you’d give advice without it.

‘What all the other systems don’t take into account is expenditure. Sure, if you’re only going to spend a fiver every week until you retire, it all works out. For most people the problem IS the expenditure.’

Using cash flow modelling software radically changes meetings with clients, Stewart says. In the past, an annual meeting with a client often used to revolve around what Stewart describes as ‘the boring stuff’ — ROI and annual yields, for instance — but with cash flow modelling software, IFAS can focus on tangible things, savings goals and what clients are able to spend. Simply put: it makes a client’s financial future a reality and it allows advisers to take income, expenditure, assets and liabilities and forecast this in a way that is incredibly tangible for their clients.

‘I have been in the financial advice business for thirty years, but I’ve probably been giving proper advice for two and a half years, total — since when I started using cash flow modelling software’

Stewart says, ‘It is a real eye-opener. It can be quite empowering. We’ll say, “Between now and the day you drop dead, there’ll be things you want to do. Let’s get them signposted and see what they’re going to cost.” You can talk about the good things.

Stewart says, ‘If you’re not going to spend it, you die with a big inheritance tax. Some clients refer to it as having permission to spend. We can run the software and tell them, ‘Your money’s not going to run out.’’

For other clients, cash flow modelling can be a more sobering — but even more useful — experience, Stewart says.

Stewart says that with clients in their forties, they’ll put in data such as assets, current incomes, future incomes — and work out what their situation will be in 20 years time.

Stewart says, ‘It’s a little bit like a time machine. If you’re in your forties, we can run the time machine until you’re in your sixties.

‘If you don’t like it, you can do something about it, because you’ve got twenty-odd years to go. Obviously if you’ve only got four or five years, you’ve probably left it too late.’

Software such as Focus’s Cash Flow Modeller can offer an overview, decades into the future, even taking into account changes in interest rates and other likely fluctuations in investments,.

Stewart says that with many clients, he’ll use the software on an annual basis — which helps people keep track of where their money is, and how it’s developing.

‘Most people need to use cash flow modelling software,’ he says, ‘But the sad thing is not all of our clients can afford it. It empowers people. It gives them the knowledge they need. It’s like a rudder on a ship — it gives you an idea of where you’re going, and helps you steer towards where you want to be.’

Focus’ Now:Plan Cash Flow is an interactive, digital cash flow modeller designed for ease of use. It uses Moody’s Analytics, unrivalled experts at modelling financial growth. Now:Plan enables advisers to model cash flow quickly and accurately, outlining and comparing multiple scenarios quickly and easily.