So much has changed around the role of the adviser over the last few years, and much of it for the better. The importance of cashflow modelling has exploded over a short space of time to become one of the most important adviser tools-of the-trade. Its relative simplicity belies its power to produce graphs that can easily communicate complex financial scenarios and help resolve sophisticated compliance challenges.
There are reasons that cashflow modelling has taken centre stage and it is worth looking at a couple of these before focussing on a couple of features that help Synaptic Analyser stand out. Many advisers generate graphs from spreadsheets, and these perform just as valid a function as our software, but Synaptic Analyser does a lot more.
It should also be said that many providers and platforms have cashflow modelling tools accessible. However, in the new world, accessing resources from an organisation that will also provide you with custody/investment solutions will create a possible conflict of interest with your research and, at least, provide an additional burden of proving that the decisions you make have not been unduly influenced. The FCA calls it 'channelling' (see COBS 2.3.1 (Rules on Inducements)), and any coincidence around significant inflows into a provider/platform, and use of their tools will raise concerns.
In the recent report 'An ex-regulator's guide to cash-flow planning' (you can buy it online and we would recommend it), Rory Percival is unequivocal about the importance of cash-flow plans. He provided an additional couple of points of clarification that I think will really help a lot of clients:
- "Cash-flow planning can be about any form of income and outgoings and does not have to relate to the client's overall position." A cash-flow plan need not be a holistic view of a client's finances.
- The second point is that the cash-flow plan can establish a client's Capacity for Loss. In fact, writes the author 'it should be the main way of assessing capacity for loss for most clients.' Capacity for Loss is the lynchpin of compliance and meeting the funding requirements for future income is central to any plan. An adviser needs to make an expert, objective assessment of Capacity for Loss, or using its FCA definition, identify the level at which loss may make a 'material impact on the standard of living'.
Something can also be said about drawdown and 'sustainable income'. Since pension freedoms changed everything in 2015, and GAD-based guidelines are no longer used to determine suitability of drawdown strategies, advisers have had to master the research required to illustrate 'sustainable' retirement income strategies. Rory Percival rightly outlines the importance of ensuring the 'longevity of funds' to fund a retirement plan. Consistent with a client's Capacity for Loss, he explains the role that stochastic modelling may play in demonstrating longevity. Rather than providing a stochastic analysis within Analyser itself, we prefer to direct our customers to our Modeller tool to explore longevity (sustainability) using the Moody's model. We do however have plans to extend our stochastic analysis of the cashflow planning in Analyser in due course.
Although the cash-flow model is designed to illustrate possibilities linked to the invested elements of a plan, i.e. pensions, ISAs and GIAs, the part of the Synaptic Analyser tool that our customers seem to appreciate most is the ability to include additional sources of income, for example state pension, buy-to-let property or wages. This makes the outputs far more useful from a client-facing perspective.
Financial planning is made easier on a number of levels with Synaptic Analyser:
- Real flexibility comes with the ability to save multiple scenarios, which are essential to help provide stress tests and what if scenarios;
- Direct access to accurate (including enhanced) annuity quotes makes any planning around 'secured' income a lot easier;
- A dashboard that provides calculations on 'investment required' and 'maximum income' from investments included;
- Integration of accurate quotes from a range of providers helps complete the research process.
Q4 2018 will see the addition of 'Phased drawdown' capability for the Synaptic Analyser tool.
The screenshot above shows how data relevant to the recommendation can be accessible in one screen, capturing all the key facets of retirement planning and allowing 'on-the-fly' editing of inputs. Notice the ability to represent the results in 'real' terms, i.e. inflation adjusted – important in gaining the understanding of the client. I can use the 'income requirements' slider to experiment with different levels of income required from the plan.