Julie Lord CFPTM, Chartered FCSI, a director at Prestwood Software, said the lifetime cashflow model should be the thing that drives the advice process, but must be regularly reviewed and the assumptions challenged.
Her comments come after some advisers suggested in the trade press that the FCA should consider getting involved after concerns were raised about ‘simplistic’ use of the tools.
Ms Lord, a Chartered Financial Planner and Chartered Wealth Manager at BFP Wales, has been using a lifetime cashflow forecasting tool with clients for over 25 years.
She said: “The success of lifetime cashflow forecasting lies in the skill of the planner in using the tool during client meetings to model client goals and give them permission to dream big.
“Like any model, it has to be regularly reviewed to take account of changed circumstances, legislation, tax rates etc, but this cements the client relationship with their trusted adviser and gives them a much clearer idea of what lies ahead.”
As it does not involve a personal recommendation, cashflow planning is not a regulated activity. But advisers who use it are expected to comply with the FCA’s expectations for treating customers fairly, the regulator said.
Ms Lord, who was an IFP Board member for 15 years, told Financial Planning Today: “I have grave concerns about whether advisers are using the available tools properly - especially the very simplistic ones - and whether they understand the massive difference in outcomes that can occur if small and simple mistakes are made at the input stage.
“This could result in giving clients a false sense of security or cause them to be much more cautious than they really need to be.
“That said, I would also be worried about FCA intervention as the whole point about cashflow modelling with clients is to help them create the lifestyle of their dreams which by definition is bespoke and unique.
“We don’t want to end up with a restrictive and regimented FCA designed process which doesn’t allow planners to show their imaginative flair, or clients to model their dreams. By all means the FCA could issue guidelines, but more important to me is its understanding of the value of a good quality model to client life and financial outcomes.”
Ms Lord said cashflow modelling has provided “a sound foundation on which to build clients’ financial plans and allowed them to engage properly in the planning process by seeing what their future life will look like”.
The FCA told FPT it has no current plans to intervene on cashflow modelling.
Look out for the technical update in sister publication Financial Planner magazine, out next week, for a feature on cash flow modelling written by Ms Lord.
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