Cash flow planning

Richard Allum CFP APP

“Creating ways to help people make more sense of money”

Why am I here today ?

“Those that can’t see the future……”

“Those that can’t see they can’t see the future.”

Alan  Dick  

Estate planning

Too much money

Lifetime planning

Shortfalls

Getting real

Investment risk

Show me the money!

“A poor financial planner is a poor financial planner.”

David  Norton  

Planning process

1.  Establish goals & objectives 2.  Gather data 3.  Analyse information 4.  Develop plan 5.  Implement plan 6.  Monitor & adjust

Plan structure

•  Cohesive document •  Logical progression •  Language •  Style & content •  Action plan •  Presentation options

Key roles

Adviser Paraplanner

Leads relationship Gathers data

Presents plan Analysis

Provides advice Prepares plan

Data, objectives & assumptions

“One of the keys to successful financial planning is learning to let go of precision.”

Carl Richards @behaviorgap

No objectives, no plan!

•  Clear & concise •  Prioritised •  Realistic timescales •  Agreed & written down •  Regular reviews •  Needs v wants!

Financial objectives

•  Increase my spendable income •  Pay less tax •  Improve retirement income •  Increase investment returns •  Pay off mortgage

Emotional objectives

•  Increase my financial security •  Achieve financial independence •  Safeguard my family •  Understand more about my money •  Help other people

Primary objective

As a minimum maintain the lifestyle I want under any circumstances however long I live

Useful questions

•  So what? •  Why? •  What would need to happen for…. •  Can you afford to do the things you want? •  Do you have enough time to do them?

Lifestyle planning

•  Define it •  Cost it •  Fund it •  Transfer surplus •  Risk management •  Tax efficient

Assumptions

•  Inflation •  Earnings growth •  Investment returns •  Tax •  Mortality •  Capital conversion

Real value of money

Assumption Notional Real

NAE 4.5% 1.5%

Savings 2.0% -1.0%

Investments 6.0% 3.0%

School fees 6.8% 3.8%

Assumptions

In principle, simply as a planning assumption…

If you can’t fault the assumptions, it’s reasonable to accept the conclusions…

Net worth

Asset Value Property £500,000

Realisable assets £210,000

Business £250,000

Personal effects £50,000

Pension funds £230,000

Total £1,240,000

Liquidity ratio

21% Cash & investments £210,000

Budget

Source Amount

Net income £4,500

Expenditure £3,000

Disposable income £1,500

Spendable income ????

Cash flow planning

Framing

Context

Engagement

Show client….

•  If on target •  What return is needed? •  How much more….is needed? •  When (or if) they can stop work •  How much they can give away

Making sure you don’t run out of money!

Multiple scenarios

•  If all goes to plan •  Someone dies •  Serious illness •  Retire early •  Sell business •  Investment risk & loss….

What the FSA said

The “problem”

Inadequate account of…. capacity for loss

Over reliance on tools

•  Lack of understanding •  Standard deviation & volatility •  Poor question & answer options •  Monitoring & management information

Behaviour  &  emo3ons  

A solution

•  Robust, repeatable process •  In-depth discussion •  Full understanding of risks •  Don’t rely on risk profile tools •  What return is needed? •  Is any risk needed?

Cash flow tools

Calculators

Excel

Goal seek

Solutions

Voyant

Truth

Benefits

•  Better client relationships •  In control •  Greater fee income •  Generational planning •  No market moans!

Good reads

www.moneyscopehq.com  

www.paraplanplus.co.uk