Every financial adviser “should have cashflow planning but it should not be the whole conversation”.
This is what Lyndhurst Financial Management financial planner Rory Albon said at Money Marketing Interactive in Leeds May 2023.
Speaking today (11 May), Albon stated cash flow modelling is important, but it should be taken with a pinch of salt.
However, the “Financial Conduct Authority is right to push for it”.
He did stress that as a planner he provides the emotional support and engagement to clients in one-to-one meetings.
He explained that Google cannot replace advisers when a client wishes to know when is a good time to invest in venture capital trusts (VCTs). He added that this is when a financial adviser becomes vital.
Still, robo-advice may become more popular in the future, Albon noted.
Ultimately, he tries to put technology on the backburner.
When discussing inflation during the panel, Dynamic Planner head actuary Steph Willcox made the point that it is important for advisers to remind clients that when the new inflation figures are released they have already been living with the consequences of this rise in prices.
Willcox said: “Any guaranteed number of inflation is something we are already experiencing.”
She elaborated that advisers should assure clients that they can handle investment losses and rising inflation and help to build emotional resilience to these events.
Dynamic Planner even has an in-house psychologist to help advisers build on clients emotional resilience.
Albon in response said that you tend to have clients who keep up with the latest inflation figures, but the vast majority do not know the exact number. That is when he uses cashflow planning to show clients the longevity of their investments.
Both of them mentioned that the Bank of England (BoE) decision in regards to interest rates will have a big impact on clients’ finances.
The BoE today (11 May) have raised interest rates from 4.25% to 4.5% which is a 0.25% points increase in an attempt to bring inflation down.
In relation to the interest rate hike news Quilter financial planning expert Rio Stedford said: “Sadly, those already in debt, particularly unsecured debt, will find higher interest rates makes their problem worse.
“Often higher rates are quickly passed down to those in debt intensifying their problem. To counter the increased cost of servicing debt, it’s crucial to prioritise paying down high-interest debt first and explore options for consolidating or refinancing loans to secure lower interest rates.”
She added that on fixed rate mortgage deals are safe from increases until their deal ends.
But, “ultimately, anyone whose ultra-low fixed rate deal will be in for a nasty shock when they step out into this new interest rate environment,” she continued.
Stedford also pointed out that those saving will benefit from this rate rise and that higher interest rates are not necessarily a bad thing for pensions.
She said: “A rise in interest rates can have a positive effect on annuity rates, which are closely linked to government bond yields. Higher interest rates generally lead to higher bond yields, which in turn lead to better annuity rates. This means that retirees who are about to purchase an annuity could receive a higher income throughout their retirement.”
