The universal truths of cashflow modelling
June 15, 2022 11:47 am
There are universal ways cashflow modelling is used by financial planning firms, observes Jon Dodson of Redmill Advance.
In a few short years, we’ve moved to a point where Cash Flow Modelling (CFM) is a staple in many financial planners’ toolkit.
It’s truly amazing how much colour, what is essentially a big calculator, can bring to the client experience and the service they are offered.
Some firms have adopted a very clear approach to where CFM sits in their client journey, others have given their planners the flex to use the tool as they see fit with clients. Here, I thought I’d look at just a few of the ways I’ve seen CFM used with clients. Outside of the parameters defined by the regulator for DB transfer advice, I’m not sure there’s a right and a wrong way to use it. Though I would point out that two things seem to be universally true:
1. It seems to be far more compelling when it is used in a live environment rather than just sharing static content.
2. It only works if the conversation with the client is exceptional – this seems obvious but on the very odd occasion I have seen CFM positioned poorly or become a conversation replacement.
After that, it seems that the use of CFM is down to the preference of the planner (within firm policy) and the effect they wish to have with a client. What follows is three of the more common uses that I have seen in the past few years. Indeed, many planners will use two or all three of these when working with a client…
If a planner has used CFM with a client at outset, the narrative from the outputs gives a dynamic to the planning story which helps clients visualise progress towards their planning objectives – this makes returning to CFM at reviews critical in order to continue that narrative.
At its most effective then, we may choose to think of the role of CFM like this:
A client’s goals, assets, objectives and aspirations etc are like the numbered points on a dot-to-dot picture.
Great planning draws the line to join the dots and create the picture – it brings coherence.
CFM is when we colour that picture in.
By Jon Dodson, Redmill Advance (part of Redmill Group)