I’ve been watching the results of the Financial Planning Today survey as to whether or not the Planning community feel that cashflow planning is essential to a Financial Plan.

I haven’t been surprised to see that not everyone feels it’s essential. Some 22% said no when asked if it was essential to ‘true Financial Planning’.

My personal opinion is that you can’t possibly know how your client’s planning will work out if you haven’t looked at the analysis of their lifetime cashflow.

No matter how many times you do the calculations yourself, without some form of cashflow model, you will never really know how your recommendations and calculations will work out.

Without it, I wouldn’t know where to begin answering those frequently asked questions like:

• How much can I afford to give to my children?
• Will my partner be ok if I die?
• What happens if I stop work tomorrow and travel the world?

We work with our clients to answer these questions - and many more. Several of our clients already live by their cashflow models and pick the phone up to discuss the potential outcomes before they make decisions. Once you have seen the impact this has on a client, it’s hard to imagine that you would ever write a Financial Plan without it.

Despite my own feelings, I can understand why others may see it as something that is ‘nice to have’ rather than essential.

A lifetime cashflow model is built on an adviser’s assumptions. Assumptions about returns, life expectancy, levels of tax, income and expenditure. The only thing that’s certain about all of your assumptions is that real life will not match them exactly – and sometimes, not even nearly!

So if your assumptions are likely to be wrong from the outset, is there any point in using them to answer those frequently asked questions?

I think so.

I like to use our lifetime cashflow to draw a line in the sand with our clients. To say “If everything works out as we think it might, this is how things might look like for you in the future.”

Next year, we will have one more year of real figures to use and one less year to make assumptions about. We can then update the model, work on any changes and review the position. Financial Planning is a cyclical process.

One cashflow report is simply not enough – all plans need to be reviewed year in, year out with your clients.

In writing this article, I find that I could argue that the review process is actually one of the most important steps within any Financial Planning process.

You may be able to pass your CFP assessment without using a cashflow chart, but you are unlikely to pass it without a robust plan for reviewing your recommendations going forward.

Opinions will always differ on the best way to analyse a client’s position, but it’s important to put emphasis on all steps of the Financial Planning process and how they work together.

Can we deliver proper Financial Planning without a cashflow? Maybe.

Would we choose to? No.

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