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Danby Bloch: The value of cashflow planning

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Advisers are not using long-term cashflow planning with enough of their clients at retirement or on a regular basis once clients have retired, acccording to Platforum research conducted over the summer.

The findings are rather discouraging. Long-term cash flow planning should be at the heart of retirement and in-retirement advice. It also makes a lot of sense in the accumulation phase.

The table (below) shows the figures in greater detail – and it is not a pretty sight. Only 45 per cent of advisers undertake long-term cashflow planning for at least half their clients, while 21 per cent do not carry out any cashflow planning on a regular basis for their clients in retirement.

So what are they missing out on?

First of all, long-term cashflow planning focuses clients’ attention on their future spending patterns, both at retirement and in retirement. Most clients hate budgeting but it is a boring yet essential task, especially when working out how much income they need. Life changes and so do spending patterns.

It is probably not necessary to examine all clients’ current and expected expenditure in granular detail but it is important to get the broad outlines sorted and to get them thinking about the future.

This is an area where advisers can really add value. After all, they see people go through all sorts of phases in their lives all the time. Most clients are thinking about each phase in any depth for the first time.


Cashflow planning is also essential if they are to consider how much they can safely and comfortably give away to their family to save inheritance tax. What is more, if an adviser recommends an IHT mitigation programme that depends on making regular gifts from income, the income had better be there and on a sustainable basis.

Spending patterns in retirement can vary. Many people find they are quite high spenders in their 60s and early 70s but start slowing down in their late 70s or 80s. For such clients, it might be worth projecting a level income; that is one that gradually loses its purchasing power with inflation. They can then maximise their spend in the earlier years and steadily wind down. Other people may feel they are likely to be living life to the full for rather longer.

And cashflow planning should not be a one-time exercise at retirement either. Reviewing how much and where a client is spending should be an annual occurrence to check everything is on track. After all, things change. Investments might produce more or less spendable cash flow than expected. A partner might have died or fallen seriously ill. The client might find they are spending more than their income, or a lot less. Any of these could lead to a change in the financial plan.

It makes sense to try and conduct a fairly thorough analysis of annual expenditure from time to time if the client is prepared to help with the exercise. Nowadays, modern bank statements that itemise payees make the whole process much less painful. That said, many clients have a good idea of what they spend and how, so they can tell their adviser what their needs are without going through such a laborious process.

The adviser can then model the interaction of different levels of income and expenditure on the basis of different assumptions about trends in both.

For some clients, it makes sense for the core to be financed from a more secure source such as an annuity and the balance to be financed from drawdown. The adviser should be able to identify this core expenditure and more discretionary spending.

Advisers can use cashflow planning to illustrate the impact of investment risk (early losses or pound cost ravaging) and get a much clearer idea of clients’ appetite for risk in a practical way. I am not sure how else you can talk usefully about capacity for loss.

Really good cashflow planning helps clients understand all their possible futures. It is time far more advisers used these tools properly.

Danby Bloch is chairman at Helm Godfrey


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Agreed – ironically use of lifetime cashflow planning and the software to go with it is NOT regulated, but as one of my team who is trained to use the software, but not fully qualified yet said…. the clients value the lifetime cashflow planning more than talking about the regulate stuff!

  2. Graham Miller, MD, O&M Systems 26th October 2016 at 2:45 pm

    Tools are distinct from illustrations and the FCA expect firms to consider using them, according to the FCA’s PS 16/12 document.

    That document is 111 pages long, so the relevant section is on page 18.

    “We agree that tools have the potential to aid consumers understanding of their retirement options and expect firms to consider using the tools that best support their customers’ needs. As stated in CP15/30 we regard tools as distinct from illustrations.”

  3. Blue Eyed Monster 26th October 2016 at 3:30 pm

    @ Phil Castle
    How perceptive is your team member! Hold on to him or her!
    Financial planning has always been the most appreciated side of advising clients, but unfortunately the battalions of product providers have the budget to create the impression that its the product (theirs!) that matters.

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