Cash Flow Planning

by on 08·12·2015

In the last couple of months I have noticed the request for Cash Flow planning from advisers has increased. Whilst my understanding is that this is not currently a regulatory requirement, it is certainly becoming an option that advisers lean on to demonstrate future retirement issues to clients.

My own personal opinion is that the use of mass assumptions can render results limited at best. On its formation in 1992 I probably would have projected Liverpool winning the Premier League title a good few times.  Sadly, I never accounted for poor management and unfortunate expenditure patterns and thus the reality is different.

However, with the help of a sensible adviser it can certainly provide guidance on the potential of a client's position. I would suggest cash flow planning based on a multitude of random assumptions will create more issues than it helps. It is arguable that the more complex the model, and hence more assumptions, the less accurate the data could eventually be. This seems a tad unfair to an adviser who has gone to detailed lengths to provide the results. I feel a simple model is probably the best way forward to avoid creating awkward client facing moments in the future.

Of course, advisers and clients tend to have an element of common sense and understanding. Coming from this view point a typical yearly appraisal provides a real insight as to how the clients overall financial position is moving along.  After all, is pension advice, for example, complete without a forecast as to how other non-pension assets may, combined with pensions, provide the ultimate result a client requires.  For clients who have ambitious plans for their pension pots under the new pension rules, a strong cash flow model can highlight the errors of foolish expenditure and ensure any plan has a resemblance of realism.

Whilst the FCA are a little vague on this topic, I certainly hope any element of cash flow planning is appreciated for what it is without being used as a further brush to beat willing advisers with in the future.