The future of advice… is in the cashflow analysis

The cashflow and retirement modelling tool Synaptic Analyser sits at the heart of the strategy Synaptic is adopting for the future of its research suite. Several trends are making the use of cashflow modelling increasingly influential.

"Broadly, it is impossible to address suitability without engaging in financial planning on behalf of the client, including knowing your client and formulating goals and strategies with them. Regulatory proof of suitability is demonstrating the alignment of a plan or a goal with an ensuing recommendation."

The outstanding trend marks the move of the adviser from a financial services retail salesperson to a professional whose care of clients is characterised by financial planning. Financial planning requires a client's circumstances and goals to be mapped into the future, and the only way to represent this as part of a discussion or plan is by some kind of cashflow model.

Cashflow modelling, suitability and financial planning are inextricably linked

The FCA have signposted that future thematic reviews will be revisiting suitability, specifically in the short term, in the arena of 'long-term savings'. This will include a review of the impact of RDR and MiFID, all of which supported an over-arching objective to separate advice from investment management, and to force advisers to charge for the value they add through advice transparently, itself a challenge for many who were used to earning from the invested assets. The removal of commission from the equation was the gamechanger for many, signalling the need to consider fees, and foresee a time where adviser charging may be removed in its current form, where charges can be applied ad valorem.

Broadly, it is impossible to address suitability without engaging in financial planning on behalf of the client, including knowing your client and formulating goals and strategies with them. Regulatory proof of suitability is demonstrating the alignment of a plan or a goal with an ensuing recommendation.

The components of the Synaptic suite all provide the research to support a firm's demonstration of suitability, for the client's benefit as well as compliance. It is the financial planning capability within the firm that will be relied on in the future to stay ahead of regulation and drive success as an advisory-led business.

An insight into Synaptic Analyser

The importance of research in the consideration of DB pension transfers is well known, including the FCA's directives around the 'Appropriate Pension Transfer Analysis', which requires the TVC (or Transfer Value Comparator) to be calculated. A simple calculation, for example critical yield, is no longer sufficient – the adviser is now on the hook for a recommendation – and therefore needs to indicate a financial plan. This of course requires the adviser to provide research to prove all aspects of suitability.

It is difficult to imagine any DB transfer business conducted without a cashflow analysis, nor in our view should any pension switching be considered without a level of financial planning supporting the recommendation, again, preferably with a cashflow analysis to support the Capacity for Loss assessment and the basis of the 'need to take risk'.

 Add Annuity  Indicative annuity income; profiled income requirements

Synaptic Analyser has the following attributes:

  1. Uses a state-of-the-art cashflow modelling tool to frame all advice in terms of objectives and strategies.
  2. Illustrate fund longevity, mortality and impact of inflation.
  3. Demonstrate sustainable withdrawal rates.
  4. Layer income from multiple pensions and other sources of income, whether state benefit, property, investments or DB scheme – no need to buy multiple tools.
  5. 'Red route' which creates a model from minimum inputs – simply set the slider.
  6. Explore alternative scenarios 'on the fly' from a single web-based view.
  7. Get accurate quotes, including Reduction in Yield calculations drawing on charges information that is up-to-date and verified by the providers.

Synaptic Analyser and live annuity calculations

In addition to the above, we draw your attention to Synaptic Analyser's ability to benchmark income against live Annuity income quotes obtainable via the results page dashboard, sourced from Webline. As the majority of retirees are entitled to some kind of 'enhanced' terms, Synaptic Analyser will pass the user through to the full Webline journey to capture details to acquire enhanced annuity quotes. (see screen above).

The screenshot above shows a client's profiled income requirements for retirement and the resulting fund values throughout the term, in this case on a nominal basis.

The three panelled, dynamic calculations are i) the investment required to get the desired income; ii) the Maximum level income achievable from the scenario (including additional income and; iii) the Indicative annuity income value, calculated from converting the savings pot at retirement into an annuity.

Capacity for loss assessments are predicated on the possible impact of portfolio losses on the client's future standard of living, which in turn depend on cashflow analysis. If there is 'head room' in the plan, the client can afford the risk, according to the regulator's definitions, so the plan can develop options.

If your firm is embracing financial planning to meet the regulatory challenges of the future, Synaptic's suite, including Synaptic Analyser, may be of interest. Harnessing the power of data in financial planning is an area that will help advisers succeed in the future.

Call 0800 783 4477 for a demo of Synaptic Analyser, or to discuss your firm’s wider research requirements.