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Alistair Cunningham: The charlatan movement endangering cashflow planning


Marketed by the Government as supporting freedom and choice, misuse of flexi-access drawdown has the power to destroy an individual’s lifetime wealth. With this in mind, it is not unreasonable a product-related recommendation should cover the necessary detail in a way that is appropriate to the individual, highlighting relevant risks and benefits with due consideration.

As financial planners we are in a position of great trust and power, and regulation exists to enforce a de minimis level of compliance to these rules.

A cashflow plan does not follow such rules but the power to do harm is no less. I recently read a plan where a 35-year-old inheriting a sizable sum was told with confidence she could stop working without fear of running out of money.

This is a bizarre and extreme example but to make such an assertion for anyone is frightening. This particular individual is a bright City worker and was left puzzled and, to a point, ripped off as she had paid a significant four-figure sum for a document that made such bold conclusions.

Genuine prominence was given to her and her partner’s objectives, which, having received the inheritance from a parent who had died young, focused heavily on tax-efficiency. In this regard, a trust was recommended to save 40 per cent tax on death of the couple. But no reference was made to the 6 per cent charges every 10 years on this multi-million-pound legacy. With a potential joint lifespan of five, six or more decades, this would likely be more than the tax they were trying to avoid.

The report, with a fervour bordering on fanaticism, also destroyed the deceased father’s investment strategy. He had never taken advice and his fund holdings looked like a “who’s who” of multi-asset vehicles but they were diverse and, while costly, had performed excellently. It was clear from the mantra in this independent adviser’s report, however, they firmly believed the only way to invest was in passive.

But the real issue was the assumptions, which were complex when they should be simple and simple when they should be complex. Price inflation was quoted to three decimal places but their budget, apart from an increased sum to fund for children’s school fees, was assumed to be level for life.

Their life was expected to end on their 90th birthday. How can anyone purport to project life expectancies 55 years from now? There was nothing about any potential need for long-term care, the risk of living “too long” or gifts and legacies for other family members (most of which would not even be born yet).

There is a dangerous charlatan movement rising, which offers “happiness for sale”. I am actually a believer in cashflow planning but it is the process that is important, not the outcome. We must rigorously challenge the assumptions and never, ever peddle surety.

The true skill in being a financial planner is to highlight risks and how to mitigate them. It is not to give peace of mind when clients should be fearful.

The “holier than thou” approach to planning is dangerous in the extreme and can – no, will – do more long-term damage than paying over the odds for the “wrong” investment strategy. There is a lot wrong with product-oriented sales but there is at least as much wrong with this false Utopian variety of snake oil.

Alistair Cunningham is financial planning director at Wingate Financial Planning



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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Good points Alistair. I agree that there can sometimes be too much effort trying to reassure clients and that potential risks are downplayed. There is also the danger with some cash flow models give a very precise figure of what the clients net worth is predicted to be at say age 100 when a wide band of possible outcomes is more realistic.

    The saving grace for this process is the annual review when the avdiser and client have the opportunity to tweak all the inputs to the model.

  2. Bless you Alistair. At long last, someone of real note has pricked the bubble of the ‘Cash Flow Moonies’.

    These people have been brainwashed into believing that nothing can commence until a full (and no doubt expensive) lifetime cash flow report, with attendant fancy charts and diagrams has been produced to reinforce and justify the advice based on this spurious exercise. The providers of these wonders of forecasting have a vested interest in making them ever more complicated and involved (and expensive). The users often regard them as a ‘get out of jail card’ as far as compliance is concerned.

    A perfectly good cash flow forecast over the next 3 – 5 years can be produced on an XL spreadsheet by anyone with a modicum of IT ability. Provided of course that the relevant caveats are very clearly pointed out. Provided you keep your job, provided there are no major changes such as illness, marriage, divorce or children. Provided that we assume that the Stockmarket goes neither up nor down and that there are no major shocks instigated by the Government or anyone else and that inflation remains within the assumed bounds. To make major assumptions many years hence is plain necromancy.

    These points are precisely what make a lifetime cash flow such a worthless and banal exercise. I can only hope that due note is taken of your thoughts.

    I’m additionally heartened by your remarks concerning the indiscriminate use of passive investing. Sure, passive investing has a place, but the self-same people who fervently believe in lifetime cash flows are often also the acolytes of passive investing. A portfolio of mainly passive investments demonstrates, to my mind, that the adviser knows nothing of investing and this is a convenient placebo that enables him/her to provide advice on a topic on which they are not entirely at ease, or are unable or unwilling to do the necessary background work.

    • Harry, your points are exactly what I meant in my post. No-one can foresee the future but it is reasonable to ask a client, say, what income do you need from your pension pot over the next five years and then plan using a spreadsheet (or other method). Immediate death benefits calculations are handy! It can be helpful as well to estimate the income that MIGHT be available in retirement given the assumptions you identified. What you cannot say is “In 10 years time you will have xxxx available to give you an income of yyyy per annum (please see assumptions listed below)”. Statistics and calculations are great for now, estimates for 5 years time and speculation for the longer term!

  3. I couldn’t agree more with this article! We had hoped to offer a full cash flow modelling module to our initial release of our software but have held back until a later version because of problems such as those highlighted here. What we have done, however, is to look at sequential loss calculations and developed a program to illustrate this problem. This will be extended so that Monte Carlo calculations give SOME idea of likely outcomes. They are just that of course, nothing can accurately foretell the future, but not including current taxation rules into such cash flow analysis borders on stupidity or at best a lack of understanding. There are so many variables that using one accurate to 3 decimal places is absurd! I am sure the author would agree that as discussion points, cash flows are a good starting point but as financial advisers, let’s at least get the basics right and understand what we are presenting to our clients.

  4. Over my 37 years in financial services, 28 as an adviser, the one thing I have learned is that no model can ever predict the future with any degree of accuracy. Never assume anything as it will make an ass out of u and me.

    Highlight the dangers more than the positives and explain every option that is suitable clearly. My biggest concern with any modeling tool has always been the client believing that the model is what is likely to happen. We have already experienced this in the past with product illustration, which have proven to be not worth the paper they were written on.

  5. I have used cash flows for 25 years. What concerns me is the emphases many advisers today put on cash flow planning them.

    If the past 25 years I have always made clients aware the a cash flow is not a sliver bullet. There is no magical or simple solution to the complexities that life throws at us

  6. @Alistair perhaps you could give some background on the qualifications of the adviser in your “case”? While its entertaining using the cashflow angle to denigrate the work of another adviser, I would assume this isn’t about someone that was working as a brickie last week given they are advising very wealthy city types on investments and trusts they are probably a very well qualified, experienced adviser? Don’t think the problem is with the cashflow really is it?

  7. Some very good points Alistair, but as ever context is vital. The issue here is, to be blunt, the adviser is forgetting the common sense required to accompany use of any tool. Every model is simply one version of a future, not the future.

    I assume you deliberately intended to stir up a particular debate by referencing snake oil….

    I do wish that our “industry” could discuss best practice and differences without taking snipes at one another….Still I guess it fills the columns.

  8. A bad workman blames his tools. An excel spreadsheet or specific lifetime cashflow software are BOTH just tools. Clients often dont understand figures, the pictures from a lifetime cashflow give an impresssion with a scale, but rubbish in, gives rubbish out.
    The Army has full orders and quick battle orders, neither survive first contact with the enemy, BUT, you still do your recce (fact find) and QBO (show some kind of projection of potential outcomes).

  9. I thought, perhaps wrongly, that as an industry we had given up telling people exactly what they will have at any point in the future. The only exception is putting a fixed amount in a deposit account but you don’t need level 4 or a “tool” to figure that out.

    Our job is to show clients how best to achieve their desired outcomes and explain the inherent risks of any potential chosen solution. We all know that a clients desired outcome will change from one meeting to the next. How anyone can tell a fit and healthy person to stop work (unless that is their desire) is beyond me.

  10. The story about this “case” is riddled with inconsistencies. For starters, if you were in your mid thirties and you suddenly came into upwards of £2m, would you really be bemused if someone told you that you didn’t have to work again as along as you maintained your current level of expenditure? I know I wouldn’t that’s for sure, in fact the very opposite! The adviser has chosen to project to age 90, but as you rightly point out no one knows when some one is going to die and so any choice of projection age is arbitrary, so what age would you have been happy with? Would you have used the same criticism if they’d projected to 100? You have to choose an age to start with don’t you? These are the foibles of cashflow planning, no one ever knows what will happen and what adviser has ever sat down with a client and said that this is it, this plan is 100% accurate and predictive and this exactly how your life is going to go. None surely. Yes the adviser may have made a mistake with the trust recommendation but is labelling him or her a charlatan or snake oil salesman really warranted here simply because he or she has tried to give someone some loose projections around the growth(or otherwise) of their money?

  11. Illustrations are rubbish too but compulsory for any product solution. I guess at least they give a range of outcomes, but then so can cash flow modelling in the right hands. Its a tool and as the saying goes “it’s bad workman who blames his tools”

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