An Adviser is For Life

An Adviser is For Life

Financial Adviser can seem rather a catch all term – perhaps someone you only contact when you want specific advice on retirement or how to fund a business venture, but for you to get the best results from an adviser/client relationship, you need to think long term.

How lifetime cashflow modelling works

Lifetime cashflow modelling is becoming a bit of a buzzword in the industry, but it’s simpler than it sounds. Essentially, cashflow modelling means just that – looking at a client’s long term cashflow and ‘modelling’ the outcome of various investment strategies. However in actuality it’s a little more comprehensive. It’s a more proactive approach and could potentially provide better returns than more traditional methods. A recent case study in the Daily Mail looked at a family whose investments have seen a rise in value between 4.6 – 5% since taking advice.

Getting to know you

It’s important to realise that this is not a one-off event. For cashflow modelling to really be effective, you’ll need to establish a long term relationship with your adviser, with regular reviews.

Initially, your adviser will take the time to get to know you. This is not just about how much you have to invest, but finding out what your goals are in life – do you need to fund university or school tuition for your children? Work out what you’ll need for a comfortable retirement? Work less and spend more time with your family? Not everyone’s financial goals are the same, and the definition of a ‘good life’ varies from person to person. Once they have examined your current income, expenses, savings and investments over a relevant time period, it’s time to incorporate your future goals and objectives.

While assessing your cash flow projections your adviser can begin to adjust your future income and expenses based on your desired lifestyle. You can start by determining your expected retirement age. Once you have that age and year, you should assume that you will no longer receive an employment income and erase that part of your income. Your adviser can then quantify the income you want and see whether the value of your pension today can deliver the income you require or whether you need to adjust your perspectives. One of the key benefits of cashflow modelling is that you can perform “what if” analyses. What happens to your savings and investments? Can you accomplish any more of your goals if you reduce your expenses?

It’s about making assumptions based on your personal goals and aspirations. It analyses in depth the financial trade-off between the achievements of a series of personal objectives. Such as; should I save monthly into an ISA or pay down my mortgage?
The good thing is that nothing is set in stone and that you can adjust your priorities as your life circumstances and aspirations change.

Your ambitions are just one end of the equation. After really getting to know what your needs are, your adviser will look at various investment options using a variety of cashflow modelling tools available to see how best to achieve them (and indeed if they’re achievable!) This end of the process uses past and present market data, as well as the adviser’s knowledge of financial products to recommend a plan of action.

The best laid plans…

The old proverb that nothing in life is certain except death and taxes isn’t quite true – tax policies can change with bewildering regularity. And that’s not the only change that will impact a carefully worked out plan, which is why regular updates with your adviser are so important. An adviser can take certain hypothetical events and use cashflow modelling to see how they might affect your plans.

What if your plans change?

  • When can I afford to make the choice to carry on or to stop working?
  • If I give some of my money to my children, will I still be able to live comfortably?
  • What rate of investment return do I need to achieve my objectives?
  • Will downsizing our home in the future release enough cash to support or fund my retirement?
  • What is the inheritance tax bill likely to be for my estate and are there ways of reducing it?
  • If I die or get seriously ill, what will be the financial outlook for my family?

It’s also useful if there are changes to the tax regime (such as the upcoming reforms that will hit pensions in April 2015), or the financial markets. Using the tools available, an adviser can look at the likely effects of these sort of changes and mitigate risk to some extent by considering contingency plans.

By thinking long term, you can help your investment strategy respond to changes in your life and changes in the market, creating a dynamic plan of action which is as individual as you are.

If you’re interested in how lifetime cashflow modelling might work for you, then talk to one of our advisers about your goals.

Sandra Corkhill, Wren Sterling

 

This article is for information only and does not constitute advice. Please obtain professional advice before making financial decisions.

The value of investments may go down as well as up and you may not get back the amount you originally invested.

Please note that we are not tax advisers – please speak to your tax adviser for further information on tax liabilities.

Sources: https://www.axawealth.co.uk/adviser/perspectives/your-business-and-your-clients/Build-client-confidence-with-cashflow-modelling/,
http://www.dailymail.co.uk/money/saving/article-2845357/We-paid-2-000-financial-advice-Isa-investments-soared-value-7-000.html

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