Financial planningRichard Allum CFP APP
Those that can’t see the future.....
Those that can’t see they can’t see the future…
“A professional service for clients who need objective assistance in organising their financial affairs to achieve their financial and lifestyle goals”
Is cash flowplanning compulsory?
Institute of Financial Planning
Lifetime planning
Estate planning
Savings strategies
Investment risk
Shortfalls
Getting real
Creating ways to help people make more sense of money
Framing
Context
Engagement
“Financial plans are worthless”
“The process of planning is invaluable”
Planning process
1. Establish goals & objectives
2. Gather data
3. Analyse information
4. Develop plan
5. Implement plan
6. Monitor and adjust
Things in common
1. Clear service proposition
2. Platform & investment process
3. Agendas
4. Questionnaires
5. Team approach
6. Charge
Data, objectivesand assumptions
“One of the keys to successful financial planning is learning to let go of precision.”
Carl Richards @behaviorgap
No objectives..no plan!
• Clear & concise
• Prioritised
• Timescales
• Agreed & written down
• Reviewed regularly
Financial objectives
• Increase my spendable income
• Pay less tax
• Improve retirement income
• Increase investment returns
• Pay off mortgage
Emotional objectives
• Increase my financial security
• Achieve financial independence
• Safeguard my family
• Understand more about my money
• Give more to charity
As a minimum maintain the lifestyle I want under any circumstances however long I live
Key phrases
• So what?
• Why?
• What would need to happen for...?
• Can you afford to do the things you want?
• Do you have enough time to do them?
Assumptions
• Inflation
• Earnings growth
• Investment returns
• Tax
• Mortality
• Capital conversion
Real value of money
Assumption Notional Real
NAE 4.5% 1.5%
Savings 2.0% -1.0%
Investments 6.0% 3.0%
School fees 6.8% 3.8%
House prices 3.0% 0.0%
Assumptions
In principle, simply as a planning assumption.....
If you can’t fault the assumptions, it’s reasonable to accept the conclusions......
Net worth
Asset Value
Property £500,000
Cash savings £68,000
Investments £142,000
Business interests £250,000
Personal effects £50,000
Pension funds £230,000
Total £1,240,000
Liquidity ratio
21% Cash & investments
£210,000
Budget
Source Amount per month
Fixed expenses £2,150
Variable expenses £1,100
Total expenses £3,250
Gross income £6,500
Net income £4,575
Disposable income £1,325
Spendable income ???
Plan structure• Cohesive document
• Logical progression
• Language
• Style & content
• Action plan
• Presentation options
Reviews
• Essential
• Review everything
• Assumptions
• Process
• Presentation
Manage expectations
Key roles
Adviser Paraplanner
Leads relationship Gathers data
Presents plan Analysis
Provides advice Prepares plan
“A poor financial planner is a poor financial planner”
David Norton
Cash flow planning
Show client.....
• If on target
• What return is needed?
• How much more ..... is needed?
• When (or if) they can stop work
• How much they can give away
Making sure you don’t run out of money!
Multiple scenarios
• If all goes to plan
• Someone dies
• Serious illness
• Retire early
• Sell business.....
Risk profiling
A solution• Robust, repeatable process
• In-depth discussion
• Full understanding of risks
• Don’t rely on risk profile tools
• What return is needed?
• Is any risk needed?
Investor behaviour
“We took risks, we knew we took them; things have come out against us, and therefore we have no cause for complaint.”
Robert Falcon Scott
Cash flow tools
The market
The market
Calculators
Excel
Calculators
Goal seek
Solutions
Benefits
• Better client relationships
• In control
• Greater fee income
• Generational planning
• No market moans!
Useful resources
A good read
www.moneyscopehq.com