Cat McInally Investment Specialist M & G Wealth

Following on from the successful Retirement Income masterclasses held earlier this year , I was delighted to have the opportunity to present to Simply Biz members about the recent FCA guidance on cash flow modelling .

Financial advisers are increasingly recognising the critical role of cash flow modelling in enhancing their proposition . Although there is no set requirement for advisers to carry out cash flow modelling , recent guidance would suggest the FCA see the integration of cash flow modelling into financial planning as key , as it can help provide a structured approach to understanding a client ' s financial future .

The Importance of Cash Flow Modelling

Cash flow modelling is a sophisticated tool that allows financial advisers to create detailed projections of a client ’ s financial situation over time . By inputting various data points — such as income , expenses , assets , and liabilities — advisers can generate a visual representation of a client ’ s financial trajectory . This modelling not only illustrates current financial health but can also be used for future scenarios based on different

variables , such as changes in income , market conditions , and lifestyle choices .

Enhancing Client Understanding

One of the primary benefits of cash flow modelling is its ability to simplify complex financial information . Clients often struggle to grasp abstract financial concepts , but visual tools such as graphs and charts can make these concepts more tangible . By presenting data visually , advisers can help clients understand how their financial decisions will impact their future , thus fostering greater engagement and confidence in the advice process .

Addressing Sequencing Risk

Sequencing risk — the risk that the order of investment returns will adversely affect a client ' s portfolio — poses a significant challenge , particularly for those in retirement . Cash flow modelling enables advisers to assess this risk by simulating various market conditions and their potential impact on a client ' s financial plan . For instance , using stochastic modelling techniques , advisers can generate thousands of

22 | The Adviser Online