Seeing the Bigger Picture through Cash Flow Planning

This article was originally published on Quadrant Group’s website. Quadrant Group was acquired by Progeny in March 2017.

We have all heard the adage “things as certain as death and taxes can be more firmly believed.” This is the version that Benjamin Franklin wrote in a letter to Jean-Baptiste Leroy in 1789. However, my favourite thought on the theme of death and taxes is Margaret Mitchell’s line from her book Gone with the Wind in 1936: “Death, taxes and childbirth! There’s never any convenient time for any of them.” What could be more truthful?

And yet many of us spend little time planning ahead for life’s changes and opportunities. We fail to consider important questions such as:

  • When can I afford to retire, and could I consider partial retirement?
  • If I want to provide financial support to loved ones, will I still be able to live comfortably?
  • What rate of investment return do I need to achieve my objectives?
  • What level of financial risk should I be taking?
  • Will downsizing my home in the future release enough cash to supplement my retirement? Do I have to downsize if I don’t want to?
  • How will an inheritance tax bill impact my Estate? Are there ways of reducing this liability? What are the implications?
  • If I die or get seriously ill, what will be the financial outlook for my family?

The strength of a good wealth adviser is in their ability to build a financial plan with a client, then bring that plan to life. Major decisions about work, property, supporting others or making investments should be made with an understanding of how these may impact future wealth and security. At Quadrant Group we use a process called ‘Lifetime Cashflow Modelling’ to help clients plan for the future. Lifetime Cashflow Modelling is aimed at individuals who wish to become (and remain) financially well organised.

In a previous post, Failing to Plan is Planning to Fail, the 6-steps in our Lifetime Cashflow Modelling cycle were explained in terms of the journey we take with clients to fact find, review and evaluate their wealth plans. We use software that helps us to achieve these steps and allows us to explore different views of their wealth picture.

By illustrating the effects of pretty much any financial action or change at any point in time, our advisers are able to help clients plan better. We can visualise what effects different outcomes may have at various stages over the lifetime of their investments.

Snapshot of your Current Wealth

Our financial modelling tools allow us to get a real-time snapshot that compares today’s account and portfolio balances with the values and portfolios agreed upon during the planning process. This supports monthly or quarterly reviews and allows us to update clients on not just market performance, but overall plan progress.

A single view of the aggregated portfolio is perfect for visualising the need to rebalance portfolios or when to review the plan. Our tools pull data, such as account holdings, directly into a single-view panel and shows these holdings priced and classified for real-time comparison. Our advisers can also add accounts, debts, properties and other portfolio items. All of this information is integrated back into your portfolio, so that when it is time for the next planning session any items added or updated are ready for use.

Risk Modelling

Market cycles are a concept that is very important to discuss with our investors. Using a crash simulator, which sounds a bit grim but shouldn’t be avoided, provides some powerful pieces of data:

  • The calculated average annual percent return needed from your plan outset for the long-term plan to complete successfully with a market crash event simulated.
  • The average annual percent return needed after a major (simulated) crash event for the plan to complete successfully.

Taken together, this ‘capacity for loss’ data provides us with a vivid visual and scientifically-based analysis to support the accurate measurement of your attitude toward risk.

I have written a lot on the subject of risk. It is our job to help our clients understand from day one that it is an integral part of managing long-term success and achieving financial goals.

Estate Planning

Traditionally a lengthy and costly procedure, the estate planning module enables our advisers to model and demonstrate your different estate planning and inheritance tax mitigation strategies. This is clearly a critical factor for our clients and being able to effectively analyse and model your needs forms a large part of our ongoing stewardship. We are able to add relevant information about policy changes, legislation and other mitigating factors in order to keep your long term picture as up-to-date as possible.

Lifestyle Changes

We can help you to simulate how well your financial plan handles life-changing situations such as a disability, premature death, or the need for long term care. By illustrating the impact of these events, you can determine how much protection you may need when the time comes to prepare for the unexpected. With our simulations and illustrations, together we can model the risks that might be lurking ahead. This holistic planning approach is the key to future financial stability and success.

At Quadrant Group, we use Lifetime Cashflow Modelling and encourage our clients to review their financial plans annually. As part of our Stewardship process, we meet with our clients to discuss how their plan should be updated to suit their current situations and their goals. To learn more about how we could help you plan for the future, get in touch with us today or request a callback. We’d love to speak with you.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Andrew Pereira

Director, Wealth

Andrew has been working with families, high-net-worth clients and business owners for well over 20 years.

Learn more about Andrew Pereira