Do you have clients that have set up trust arrangements, including spousal bypass trusts? If so, watch our new webinar to hear about the potential advice opportunities from reviewing trust arrangements.
Lifelong financial planning is vital if you want to do your best for clients. Why? Quite simply, we live longer and therefore retirements last longer, but also because there are no longer generous pension schemes on offer and pension deregulation has led to a number of options that your clients can take. However, unless you use cash flow modelling software, how can you advise them about the best option for them?
There are some that might suggest that consumers can make these decisions and conduct the research themselves. After all, there are a number of consumer-facing websites that claim to dispel the pension and retirement mysteries. I certainly don’t believe that a complex estate planning problem, or a finely balanced drawdown case, can be solved using a set of advice algorithms. Not yet anyway.
But similarly, I don’t believe that financial planning without using lifetime cash flow forecasting is accurate enough to provide a professional service.
We need to be loud and proud about financial planning – where professional, qualified planners oversee the whole of a client’s financial circumstances – twinned with technologies that help people to model their expected, or hoped-for, expenditure over their remaining lifetime.
Prestwood pioneered lifelong cash flow modelling and I now find it impossible to contemplate real financial planning without it. I think it is important to use this technology in front of clients - it is more than merely a back-office tool and working through scenarios with clients allows them to see the impact immediately, of any possible action or inaction they may take.
There are a variety of software options being used by financial planners but once you have ‘seen’ your financial future displayed visually on a lifetime graph, you will certainly understand the impact of your financial decisions.
The questions that underpin everything are “how long are your assets likely to last, and how long do you think you are likely to live?’
Many clients are simply afraid they will run out of money too soon. Or, if too cautious, they may end up having not used their assets to their full potential. The latter case is not so uncommon and by modelling their future outgoings in many cases the financial planner will be able to point out that they have scope to spend more than they thought.
The modelling enables clients to look 15, 20 or even 40 years ahead. It makes clients feel more confident – that they have choices and options.
Entering your outgoings – or hoped-for outgoings – to cover everything from essential costs, such as heating or council tax, through to discretionary spending on travel, car replacements or gifts to grandchildren is the necessary input before a series of graphics and charts is then generated, showing whether the client will outlive your money, or vice versa.
At initial meetings clients can see what we do by using financial planning software to illustrate our process - from initial data entry through to a lifelong cash flow forecast.
Lifelong cash flow forecasts are prepared, based upon assumptions that have been agreed by your client – again this is vital if you are to make them aware of how little or how much risk they really want or need. Actually understanding their future cash inflows and outflows, future inflation, and future investment returns means they accept the outcomes – they must do since it is their financial plan that they have been directly involved with. Additional forecasts are developed to identify ‘what if’ moments e.g. the premature death of either partner or if either partner became disabled and in need of long term care.
Increasingly, inter-generational planning is a major element - and not just to mitigate tax. Lifelong cash flow planning is used to identify the extent to which clients could help family members without prejudicing their own financial security. Helping children or grandchildren with education expenses, to pay off student loans or to fund deposits for their first homes are high on the list of most clients' priorities.
An additional element of financial planning must include the client’s provision for long term care. Good financial planners will know the general statistics required to be able to have an informed discussion with your clients about the costs or length of stay in long-term care, and this can have a serious impact on the cash flow plan.
Financial planning must be seen as key in the advice process and having the right tools to do the job properly in a no-brainer!
Prestwood are the leaders in client facing financial planning software. In 2007 they launched 'Truth®' which has since helped hundreds of advisers move to more profitable financial planning models. Truth is easy to use with clients thereby creating powerful client relationships. It moves the focus off products and investments to what matters most – helping clients identify, achieve and maintain their desired lifestyle.