Somebody’s gonna hurt someone…

Although ‘Cashflow Modelling’ has been around for 30 years or more it only now appears to becoming popular. I’ve been using it successfully with clients for most of those 30 years, and speaking from experience, if used properly, it is the most powerful resource available to any financial planner.

How else can you show clients where they are heading financially? How else can you make sense of the long term effect of financial decisions made today? How else can you demonstrate the effect of your recommendations?

More importantly, clients love it!

It adds incredible value, which, in a fee only world, is the reason I believe it should become the focus of EVERY Advisers ongoing service. It should become central to their proposition in order to not only deliver more appropriate advice, but because it also provides an opportunity to dig deeper with clients, to re-engage with them year after year about what’s important (i.e. their life) all the time adding more and more value to the client experience. In a fee only world, this is crucial – if you want to keep earning your fees.

There’s no doubt, Cashflow Modelling is incredibly powerful… in the right hands. 


The trouble is, Cashflow Modelling is extremely dangerous in the wrong hands!

I’ve just finished this Special Report: 7 Biggest Sins of Cashflow Modelling – How To Avoid Leading Your Clients Astray’ and in it I highlight some of the mistakes unwary Advisers are making that could cause them or their clients some serious problems.

Perhaps I’m missing something. But what I can’t understand is this: with so many benefits to be gained through harnessing the power of cashflow modelling – why are so few Advisers paying the price and doing it properly?

It could be (for the reasons stated in my previous article) they only pay lip service to Financial Planning and are far too keen to get to the product / investment piece (because that’s where they think they earn their money). Or, it could simply be a complete lack of awareness of what good Financial Planning (incorporating meaningful cashflow modelling) looks like.

These are forgivable reasons. After all, the Industry has been doing its best to keep Advisers focused on the wrong things.

But, as my report identifies, there’s now a problem arising that is far more worrying….

There are now Advisers who are playing with Cashflow Modelling. These are the ones who claim they do cashflow modelling, but really, they don’t take it seriously – these are the ones who will lead clients astray.

Often they use cheap, basic tools, the outputs of which – based on such simplistic assumptions – are well, let’s just say… rowlocks.

By far the biggest sin committed is this: doing a Lifetime Cashflow for a client… as a ‘one-off’ service!

I believe any Adviser doing this should be shot!

It is better NOT to do a cashflow modelling exercise for a client at all if you are not prepared to do it properly AND make a long term commitment to revisit it every year. Clients could make serious decisions, take action – or worse, NOT take action – because of what they learn from a one-off exercise. Like retiring early, because a ‘one-off’ plan said it was OK to do so.

You wouldn’t go to the gym once and expect to be fit for life, would you? It’s the same with proper Financial Planning. You have to keep on doing it! And the reason is this: any initial Financial Plan, incorporating Cashflow Modelling, will be WRONG! Yes, that’s right. It will be WRONG! What makes cashflow modelling work is doing it EVERY year!

One of the best ways to explain this to clients is using the analogy of an aeroplane taking off from London Heathrow bound for New York. The fact is the aircraft will be off course 95% of the time – because of constantly changing air currents. The only reason it ends up in New York and not Zimbabwe is the autopilot! Constantly pulling the plane back on course so it makes its destination.

Same with my yacht. If I set off from the Azores, bound for Gibraltar, do you think I’m going to have someone on the helm, 24 hours a day? Of course not. Spellbound’s auto-helm (affectionately known as ‘Wilma’) takes over. We keep a good look out, we make allowance for wind and tide, and by constantly adjusting course, Wilma then gets us to our destination.

Same with the SatNav in your car. If you take a wrong turn, the SatNav will adjust the route constantly and inform you to make changes in order to get you to where you want to go.

Here’s my point: Imagine the above examples if you set the course just once and then never checked or adjusted it again!

That is exactly what’s happening when Advisers do this as a one-off exercize. And they’re gonna get sued.

With Cashflow Modelling, it must be based on prudent assumptions and it must be done EVERY year – year in, year out. Speaking from experience, it is the prudence and the repetition that makes it work! Amazingly so.

More importantly, this ongoing process is the very thing that helps you to demonstrate and deliver your ONGOING service in return for your ongoing fees. Each year re-engaging the client with the ONE THING that’s most important to them: i.e. their life and their lifestyle! Then, every year, you identify what needs to happen for clients to stay on course, constantly re-assuring them that they can continue to live a good life, enjoying their desired lifestyle without fear of running out of money, (or dying with too much) – that is IF they take your recommended action, which might include the recommendation of a financial product.

It could be that no financial products are necessary. But your service is still worth paying for. It could be you providing them with something really empowering – the confidence to SPEND MORE, to do more, to LIVE MORE! Life’s not a rehearsal!

Do this right, and the focus of your service becomes THEM not their money, and you providing them with the peace of mind, financial independence and financial security that only comes through proper Financial Planning (delivered by meaningful cashflow modelling). It’s no longer about boring products, or trying to outperform the market, or be top quartile – or be low cost and passive. That’s just plain boring – and not worthy of a 1% a year fee!

In return for their fees clients deserve fantastic outcomes. That’s why proper Financial Planning, utilising meaningful cashflow modelling, is  so powerful. If done properly and made central to your proposition, it’s a recurring repeatable ‘sticky’ service which will guarantee that the money ‘sticks’. That way you easily justify and KEEP your 1%pa fees.

So, I’m intrigued, with all these incredible benefits, why do so few Advisers get the message and do it properly?

  • Is it because Advisers are just not aware of the opportunity? (because of said ‘Industry’ distractions?)
  • Is it because they’re lazy?
  • Is it because they’re too busy?
  • Is it because they think clients won’t pay? (See Sin No. 7!)
  • Or, could it be because they don’t know where to look for help?

My gut feel? It’s because of the ‘Industry’s product & investment focus. Sadly, because of this most Advisers are still well and truly caught in the Transaction Trap and are paying lip service to proper Financial Planning. Which is all OK, so long as a) they don’t promote themselves as Financial Planners and b) they suffer in silence during their painful demise when clients no longer pay their fees for a meaningless product / investment based service.

You can download the Special Report: 7 Biggest Sins of Cashflow Modelling – How To Avoid Leading Your Clients Astray’ by going here. It identifies the seven biggest mistakes advisers are making. It contains some useful advice together with some powerful tips and techniques which you might find helpful.

What do you think? How has proper Financial planning incorporating meaningful cashflow modelling helped you and your business? Or, do you think it’s a waste of time?


7 thoughts on “Somebody’s gonna hurt someone…

  • Once you fully embrace cashflow modelling and make it the centrepiece of your proposition, there is no going back to old ways as your clients won’t have it any other way.

    It’s a big step for any individual/business to make this change and it’s been a steep learning curve for me over the last year, but totally worth it.

    Doing a proper client focused plan is what it’s all about and how can you do that without going through a cashflow?
    Inspired Adviser tells it as it is…..which is how it should be!
    Hopefully more advisers will see this as the only way forward.

  • Absolutely Guiseppe! You’ve paid the price over the last year and although it’s still early days, you’re already seeing the results. As you so rightly say, when the penny drops, there is no going back!

  • Years ago i assisted the iFP in marking the CFP. The vast majority of plans fail at the first first submission and, in my experience, most failed because the candidates made serious errors either in the assumptions underpinning their plans (cash-flow models) or or the incorrect usage of those within the plans. So, i agree will Paul, one plan is no use to clients but equally as dangerous is that the first plan isn’t even any good.
    It is crucial to use ‘reasoned and reasonable’ assumptions and build a checking methodology to ensure that these are correctly applied in the software and through the planning process. Get this wrong and in Paul’s analogy, you think you are aiming for Gibraltar and will tweak to keep on course but in actual fact you have set off towards Iceland!

  • Case well argued Paul. I agree that regularly reviewed cash flow projections can be invaluable for clients, and a basic mastery of Excel can achieve the desired result simply without necessarily spending money on pretty looking software packages! As a matter of course, we build in a cashflow projections on our client wealth reporting, which is a vital point of discussion at each review meeting.

    As a pilot myself, I’m thankful that aircraft inertial and GPS systems do not allow course deviation to the extent you suggest, even if cashflow models do! The analogy may be better with boats (I have no idea!)

    I’m not sure I agree that 1% charging is the way forward. I think we need to increasingly divorce oursleves from the notion that what we do is completely related to the perfornance of clients’ investment portfolios. This is hard to achieve if what you earn fluctuates in line with the deviating course you refer to.


  • Yeah. What he said. Only not. Paul is right that some advisers are going to cause damage with inproper use, but not because they don’t review the plan, but that they fail to understand the model.

    The number of websites I see (and Tweets) where clients have been convinced to retire ‘because the plan told them they can never run out of money’ scares me. Really? Never run out of money? With long-term care costing £85k per annum, health issues with loved ones potentially requiring six figures sums does your plan come with a guarantee?

    I’ve written on here before about the risk of using a 2-standard deviation 90% confidence interval and basing a clients financial future on this – this seems to be the dream that Paul seems to be pedalling – the financial services equivalent of homeopathy.

    And just like many placebos it may well work for the majority, but you’re going to end up hurting a lot of people…

    • Hi Alistair. You’ve obviously made the mistake of making your comment BEFORE reading my report. You may therefore wish to retract certain comments.

      Regarding long Term Care / Later Life planning, if ever there was a need for meaningful cashflow modelling it is this area. Each client is different, of course, but in the example given, £85k on care fees for a couple may save £20k/ £30k/ £50k or £85k pa costs in running a nice home, decent holidays, decent cars, etc. All of this can be modelled with MEANINGFUL ‘What If’ scenarios. Many clients worry about care costs when perhaps they shouldn’t.

      If, on the off chance, you are suggesting £85k pa care costs for one partner then meaningful Cashflow Planning might suggest choosing cheaper care home.

      Regarding clients running out of money, MEANINGFUL cashflow modelling (i.e. done properly) will identify the risks of clients running out of money and will remove the illusion of many that ‘they are going to be ok’. My report clearly states being prudent and making clients accountable and responsible.

      The alternative to meaningful cashflow modelling is guessing. The alternative to making assumptions is not making assumptions.

      As my report states, do Cashflow Modelling properly or don’t do it at all. Do it with the necessary detail, review and update regularly, nag clients where necessary, be prudent with assumptions and off the back of all this, create prudent portfolios – and over 30 years you will see the results of your advice. Remember, prudent ongoing planning withstands crashes of 87, techno bubbles, Gulf wars, 9/11, etc, etc, etc, etc.

      But, you won’t know that, of course.

      • This is a debate I’d love over a beer or cup of coffee some day, it’s not ideal in the medium of WordPress comments!

        Your report is all very sensible but doesn’t address the principal issue that assumption A, B, C (ad infinitum) over an extremely long timeframe don’t actually give the client the clarity that the snake-oil salesmen of Cashflow Planning believe it does. It NEVER (in my experience) can give absolute confidence that one can retire.

        Any long term modelling (lets park the contentious world of cashflow planning and focus on the weather for a minute), is dubious. I’m probably fairly certain I don’t need a snow shovel next Saturday, 1st March, but what about 1st March 2015, or 1st March 2025? etc.

        Prudent planning doesn’t withstand crashes, advice does. And even then clients can ignore that advice when under pressure. On many occasion I’ve seen users of cashflow planners ask questions like “how do I model the maximum loss of X”. Well you can’t – unless you assume the max loss is 100%, which does no-one any good – again a gross misunderstanding of stochastic modelling!

        Promising the moon for “1% p.a.” even if this means a regular tweaked review, sounds like snakeoil to me. I’m sure certain people will pay an arm and a leg for this but it’s a house of cards. People desperate for a cure for their ills may pay a fortune for homeopathy, but the statistics suggest they’re going to be disappointed, although it will arguably cure some.

        “The map is not the territory” as Alfred Korzybski said: models have their place, but they’re not reality and any assertion as such is going to lead to potential disappointment.

        While we’re on the lack of validity of assumptions you may want to check your recent subscribers. I downloaded the report earlier in the week from my personal account. You should be able to check it out.

        By the way if you’re interested I wrote some similar content; here: here: and also here:


Leave a Reply