Life & Cashflow Planning – Why So Popular?

In the second half of the 20th century, multimedia marketing aimed at an increasingly affluent western society, combined with readily available credit facilities, fuelled demand for aspirational goods. Goods which were simply not available during the post-war decade and a half of austerity.

Organisations from a wide range of market sectors which supply consumers have long-realised the benefits of associating their ‘brands’ with either iconic individuals or the achievement of an ideal lifestyle.

Oliver James’ book Affluenza, focuses on what he calls the ‘Affluenza Virus’, which is the placing of a high value on money, possessions, appearances (both physical and social) and fame. Through a number of international studies, James surmises that people who apply such values are at a greater risk of emotional distress, depression, anxiety, substance abuse and personality disorders.

He also believes that the wealthier the nation, the greater is the risk.  Americans are between 3 and 10 times more likely to suffer from depression today, than they were in 1950.

In Britain, it is estimated that around 25% of the population is under emotional distress, with another 25% on the verge. Men with earnings over £50,000 per annum are more prone to depression than those earning less. They are also under the most stress to find a satisfactory ‘work/life’ balance and feel chained to the expensive lifestyles to which they have committed.

In Arun Abey’s book How Much is Enough, he refers to an Australian survey where respondents were asked how much more they would need to earn to be happier. Whether they earned $20,000, $200,000 or $2 million the common response was “another 30%”.

With this in mind, it’s no wonder the more affluent market is lapping up the Life & Cashflow Planning propositions, especially if they’re being effectively delivered to the market.

People who work hard, earn ‘good money’ and buy ‘nice things for the family’ may well feel under pressure to maintain their income and spending levels. They may feel a lack of available alternative strategies, but probably (secretly) feel there are ideas out there that offer the prospect of at least slowing down the hamster wheel, even if they dare not jump just yet!

Understandably, many individuals focus on the here and now rather than on the longer term impact of financial decisions they’re taking. However, people who achieve a balance between:

  •                earning enough to cover their needs
  •                having sufficient time with the family
  •                pursuing their own hobbies
  •                giving something back to the community in some way
  •                having an idea of what they want their future to look and feel like,

seem far happier and more fulfilled than those simply trying to climb a ladder, keep up with the Joneses, own a bigger house or urgently upgrade to the latest gadget or model of car.

The role of a financial adviser is to help a client pause, take stock and if necessary, re-evaluate the reasons why they feel the need to keep on striving in their professional life, sometimes at the expense of their short, medium and long term personal life.

It’s not the adviser’s role to question the wisdom of the way clients chose to work or how they spend their hard-earned income or bonuses. There is nothing intrinsically wrong in wanting to provide an ‘ideal’ lifestyle for yourself and your family and this will often involve the purchase of ‘nice things’ or holidays. However once a client is really clear about their truly important short, medium and longer term priorities, they can make more informed decisions about how best to utilise the financial resources at their disposal.

Advisers are equipped to provide clients with the peace of mind that comes from knowing they’ve taken practical steps to:

  •                protect their and their family’s current and future lifestyle
  •                make the most of their opportunities to accumulate, enhance or preserve their wealth
  •                develop a plan based on ensuring they enjoy the fruits of their investment and pension plans
  •                become financially well organised and ‘in control’ of their financial life
  •                have access to an expert, qualified and trusted financial ‘coach’ to review their progress and prompt timely action
  •                be free from worry about getting the right things done on time
  •                have a coordinated, practical and jargon free financial strategy

As an outcome of a modern planning process, clients may also decide to change the way their time and physical and emotional energies are allocated across work, home and other social or community-based activities.

This process does take quite a different set of skills and strategies to deliver effectively. It isn’t just about having and being able to use the technology – advisers need to be able to explore clients’ attitudes, beliefs, fears and concerns as well as their goals and financial circumstances. To some degree that requires a better understanding of a client’s past, not just their present and future.  A change to their pricing strategy is also likely to be required. 

If the advisory market wants to gain more access to more affluent clients, then this is a real need in the marketplace. This is the job that needs doing for your affluent clients and it’s also the most rewarding job on the planet. Is your business up for the challenge?

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4 thoughts on “Life & Cashflow Planning – Why So Popular?

  • Good article. What are the changes IYo re fee structure that should be offered / considered? Should a firm split fees out ie fee for managing the money and fee for FP?

    Reply
  • A great read Simon.

    James suggests that Danish education may be one reason their culture resists ‘Affluenza’; late starting age, small classes and learning to work as a group, not as competing individuals. Look at any of the neighbours and you think, maybe they’re onto something we should know and be doing.

    Maybe Life & Cashflow planning as it exists right now, is really an extension of Affluenza, the Joneses’ preferred type of financial planner; the new ‘must have’ for those with wealth. Or perhaps modelling is altruistic after all, serving to remove them from the rat race, before it’s too late.

    I’d like to think the latter, but if your financial planner’s only goal is to make rich people look and feel richer for a hefty price tag, I’m not so sure.

    Reply
  • Rob,

    In essence yes, but ideally considering an even better level of detail under each of these criteria:

    – the client assets and how they are managed: whether investment management is outsourced to a discretionary fund manager (DFM) or multi-manager, or handled through an in-house or a bespoke offering;
    – the overall wealth being advised on, generally excluding the main residence;
    – the frequency of meetings;
    – travel time and cost if clients want the adviser to visit them;
    – breadth of reviews, whether cashflow, full financial or limited product-based;
    – other added value areas or risk factors, such as speculative investors or high income earners & associated tax benefits;
    – maybe even liaising with other advisers

    Sounds complex I know, but in practice once the criteria are set and formula put in place, a spreadsheet can do the work.

    Simon

    Reply
  • Dan,

    You are absolutely right about the Danish educating system which in fact is indicative of the Skandinavian countries as a whole. Oliver James refers to this too in his book In fact they also tend to have a tax regime that discourages high earnings and encourages better joint parenting and provides better support services. Being richer than the next guy is actively discouraged by their tax system and culture. The gap between rich and poor is small, their ecology approach is exemplary, they still have some of the world’s best businesses – oh dear this could get quite depressing if I think about it!!

    Simon

    Reply

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