Regular readers of our newsletter will probably recognise the words Cash Flow Forecast (Financial Map or Sat Nav), as we often refer to this when talking about how we help doctors and dentists work out:
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What they really want to achieve in life?
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What is this going to cost and when?
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How does this look when compared to their incomes/assets?
After all, dreams are just that unless you measure them and give them a deadline. So this measurement of what our clients want versus what they have to throw at it is imperative.
This comes to mind this week because of two things. We read that a well known large Independent Financial Adviser firm in the north of England proudly boasts that they do not need to offer this type of service, ‘because our type of wealthy client does not need it and does not want to pay for it’.
Knowing that their client profile is similar to ours – £100 to £400k income per annum and £200 to £500k in invested assets, we were somewhat taken aback as we cant do our job without it.
Secondly, we were in the middle of creating a forecast for a Consultant Anaesthetist, who is 7 years older than his wife and who was approaching retirement. So, lets look at this case to illustrate why we feel this adviser firm is flawed in their thinking.
We will call the Consultant Mike, and his wife Judy. Mike is age 59 and retiring next year, but Judy will only be age 53. She is a teacher, and although she enjoys her work, the thought of Mike enjoying himself whilst she works on is starting to get to her!
They have very firm goals with lots of travel all over the world on the cards, including regular visits to visit their adult children in Australia. But the big question is, of course, can they afford for Judy to stop work next year?
So, this is when they do their homework. We need to know:
- how much do they spend, on what and whether this will change?
- what are their incomes and when will they stop?
- what are their pensions and when are they due to start paying an income?
- is there any likelihood of inheritances to come?
- will they downsize at, say, age 70?
- what assets do they have?
- what investments have they amassed?
- are there any policies or investments due to mature?
Effectively, the client is saying to us: we have told you what we want, and you now know what we have. ‘So are we going to run out of money before we die?’
You then have to think about investment growth, house price inflation, general inflation, to what age will the clients live? Will the client wish to gift to the children to help reduce the any Inheritance tax liability?
If so, how much and when?
Can you imagine, no matter how good your maths, trying to do this on the back of a fag packet?! So the use of a robust sophisticated software programme is not only important, it is absolutely vital.
As it happens, it works out they can afford for Judy to retire early, even though they plan to spend £20-£25,000 pa on holidays and travel. They are now very happy clients with the confidence to take the plunge.
Would they do this without the measurement to back it up?
It is also worth pointing out that we are members of the Institute of Financial Planning. This body recommends that a Financial Planner works a certain way to ensure best practice, and recommends using forecasts. But Only around 2000 of the 75,000 or so advisers in the UK are members of the IFP.
Prescription without diagnosis anyone? No, nor us.
Institute of Financial Planning site
Key Considerations:
If you get financial advice from an adviser, do they use Cash Flow Forecasts? If not, ask them why?
And if you’ve never benefitted from working with an adviser that uses cashflow forecasts, you may be pleasantly surprised when you do…
Action Point
If you are serious about your financial future, and want to learn about the power of cash flow forecasting, then you can contact us here
About Graeme Urwin
