Lifestyle cashflow modeling

The Happy Financial Adviser (Barrier 2. The Influential)

The following blog post is an extract from The Happy Financial Adviser. A book written by Truly Independent Director Andrew Goodwin. To purchase your own copy click here.

Lifestyle cashflow modeling is best described as technology being half way between robo-advice and human advice. The data input will be similar to that of the robo-advice process but completed by the financial adviser on behalf of their client. The results will help the financial adviser to formulate their recommendation.

There is some way to go for these new software technologies to be exactly mid-way solutions, but in principle, they are the same fundamental calculators and algorithms. Most financial advisers have some access to cash flow modelling software, and it may help some advice cases, but it should not be a replacement for adviser intuition, knowledge and experience; it’s just a tool.

Yet this kind of software is an example of another influential barrier that will cloud the judgement of thousands of financial advisers in the UK. This software, while useful, is not a need area. Use it if you like, but don’t build your whole advice model around it. Don’t be led by others and instead make your own judgment as to its use.

Cash flow modeling uses assumed rates of growth income, tax, inflation, investment returns, lifestyle and spending. All combine to project future cash flow and such assumption combinations will compound on each other and ultimately be wrong. Regular financial adviser reviews are therefore essential, and reassessments of the cash flow are required to ensure the client remains on target. This is a negative for the adviser who is already stretched to maintain service standards for his existing clients. This means that such lengthy cash flow reviews will take up valuable time and maximise the number of clients he can service, effectively closing expansion to new business. It is therefore not the best use of technology, and there is a lot of the software that needs to be managed.

Consider this thought too. If there is a lot to be managed, there is a cost in time, and the eventual buyer of your business may not want to be burdened with commitment.

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The Happy Financial Adviser is a must read financial adviser book for anyone in the industry who feels they are not maximising their potential and wants to be happier.

To purchase your copy click here