Concerns are growing advisers are putting too much emphasis on simplistic cashflow planning, with some suggesting the FCA should consider intervening.
Wingate Financial Planning director Alistair Cunningham raised the issue in Money Marketing last month, accusing some firms of acting like “charlatans”.
Cunningham says since the RDR increasing numbers of advisers have been guilty of putting too much emphasis on cashflow planning.
He says: “We have seen a rise in cashflow planning and people don’t understand the limitations of the tools they are using. It’s not for the client, it’s a tool to help us as advisers. And it’s potentially harmful. You wouldn’t go to a surgeon and demand your X-rays so that you can make your own decision. They look at them and tell you what your condition is, but too many people present a cashflow plan as if it’s an end in itself. My biggest concern is people being told don’t worry because you have enough. We need to worry.”
Although cashflow planning itself is not a regulated activity, as it does not involve a personal recommendation, advisers who do it are expected to comply with the FCA’s expectations for treating customers fairly.
An FCA spokeswoman says the regulator has no current plans to intervene further.
“People don’t understand the limitations of the tools they are using”
Nonetheless, Finalytiq founder Abraham Okusanya says the FCA should consider providing guidance for advisers on how it expects them to use cashflow modelling.
He says: “This sort of thing lies right on the edge of the FCA’s remit, and the current thinking is that it doesn’t regulate methods or planning strategies. But you can make a case for them getting involved here.
“There’s no reason why the FCA can’t do a thematic review of this as part of the broader advice review.”
The Lang Cat principal Mark Polson adds: “If the cashflow model has become a thing that drives the whole advice process, then that is concerning. If we have advisers saying that it is gospel then they need their heads looking at, because any of those assumptions behind the model could turn out to be wrong.”
Thesis Asset Management marketing director Lawrence Cook, formerly wealth manager at Towry, describes himself as “a massive fan” of cashflow planning.
However, he adds: “The danger of it is without the skill of a planner to ask the right questions, it can become a very simplistic view of life and you can quite easily come up with an answer that says you are desperately poor, or you have more than enough, and neither is true.”