Tuesday, 07 February 2017 11:58

Julie Lord: Planners should consider this after Rory Percival warning

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 Gretchen Betts CFPTM Chartered MCSI and Julie Lord CFPTM Chartered FCSI Gretchen Betts CFPTM Chartered MCSI and Julie Lord CFPTM Chartered FCSI

Julie Lord column

Former FCA technical specialist Rory Percival believes that problems still exist around approaches to, and understanding, of capacity for loss for clients, writes Julie Lord.

Mr Percival, who now runs his own consultancy, said some advisory firms are failing to adequately assess clients’ capacity for loss - a key element in risk profiling.

He said this aspect of the advice process has “become really important” and that “there are still problems" with some risk profiling tools. Read more on this HERE.

At the risk of sounding like a stuck record, this is where Lifetime Cashflow modelling can really help.

Using this properly will enable a Financial Planner to clearly demonstrate a client’s capacity for loss, both to the client and also of course to the Regulator.

We have been using a 3 lens approach to risk profiling for clients for many years:

1. Emotional Risk Tolerance –assessed using a Finametrica risk questionnaire
2. Required investment return – determined by a client’s cashflow forecast after inputting all their income, expenditure, assets and liabilities, both current and projected.
3. Capacity for loss – using their cashflow forecast, we can show clients by means of simple pictures, just how much invested capital they can afford to lose.

Without a cashflow forecast, I can’t see how we can even start to have a meaningful conversation about these very important issues.

Some clients may not understand the terminology “capacity for loss” and it is not a question easily asked - “Mr Client, what is your capacity for loss?” is unlikely to yield good information on which we should base our advice.

However, if we can use simple charts to show the impact of market falls, we have a twofold benefit – firstly we have a great audit trail for our Regulator and secondly we are able to give our clients a great deal of reassurance, so they are not calling us in a panic every time there is a wobble in the stock market.

In my experience showing, rather than telling, is more profitable when it comes to discussing risk, because risk is subjective, not easily understood and personalising the impact of risk leads to a much better client/Planner relationship.

Ms Lord also recently explained how using lifetime cashflow forecasts helped a client deal with the sudden financial shock of losing his high flying executive job at 55.

She and business partner Gretchen Betts CFPTM Chartered MCSI, who recently launched Magenta Financial Planning in Wales, have written for Financial Planning Today magazine about their longstanding client 'Mark' (not his real name).

Find out how Magenta enabled Mark to achieve his goals and move on after his redundancy in the full feature in Financial Planning Today magazine HERE.

casebook 1

The publication features exclusive content including contributions from leading figures in the worlds of Financial Planning and Paraplanning plus features and insights produced by experienced financial journalists in London.


Financial Planning Today's third issue highlights include:

• A Special Report on the great Cashflow Modelling debate, which has got the industry talking

• Columns from PFS chief executive Keith Richards, CISI head of Financial Planning Campbell Edgar and Paraplanner John Redmond

New Investment and DFM section with 180+ DFM providers listed 

• Plus, The Client Hunter, Planner Casebook, Inside My Business with Colin Lawson, Financial Planning and Paraplanning news and much more

Feedback on the new magazine has been excellent with well over 3,000 people reading the first three issues and the number rising steadily. 

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Last modified on Friday, 19 May 2017 08:52
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