A key role of the adviser at this stage is helping the client to build financial resilience and understand that although investing may at time be volatile, a sound financial plan will weather the storm. The adviser will help ensure that their financial plan remains the objective in the overall advice process.
Conversations around potential losses and gains, as well as the overall volatility of the financial path they may experience along the way, is going to contribute to how their portfolio is structured, and may result in them taking on less or more risk than previously assessed.
Today’s economic climate
In times of economic turmoil, it might be useful to revisit the cash flow plan with your client to reassure them of their financial situation and ensure they are not unduly worried by an unstable economic or political environment.
It will be important to ensure that the cash flow plan reflects the true levels of spending, particularly where high inflation has been experienced.
Remember that inflation is a backwards looking measure, so quoted inflation figures are already built in to today’s expenditure. We do not need to increase expectations of expenditure based on these figures.
Consider where surplus funds are being spent and if there is a better use for them. This may be as short-term saving as an emergency fund, or put towards increasing the energy efficiency of your client’s home. It could also be in longer-term savings like Isas and Sipps.
It is particularly important to recognise if a client’s budget is now creating a deficit and which savings should be sacrificed to cover this shortfall.
We also need to make a plan of where this money should go back to, if the budget balances out again, to recover back to savings levels that you would like.
Finally, so much of your interaction with your clients around cash flow planning will be to build their financial resilience. To help calm worries, it can be vital to demonstrate that it is not the end of the world if we have to reduce saving in the short-term, or save into easy-access cash investments rather than riskier longer-term investments.
Volatility will always exist in markets and in cash flow modelling. It is your job to help your clients understand where volatility needs to be tolerated and showing them their long-term goals can be a vital part of this journey.
