The cost of living is soaring, with no signs of slowing down. We’re likely to see continued pressures on supply chains, and the threat of rising interest rates looms. A cash flow plan should no longer be considered optional, nor should it be an ancillary service for financial professionals. It’s a vital component of any financial plan, and should be a core service of anyone claiming to provide financial advice. Cash flow touches everything your clients do, and it’s the only reason that financial products, and the industry built around those products, exist.
We know that giving cash flow advice is easier said than done. Ingrained spending habits, debt load and structure, and an unlimited number of daily money decisions create a great deal of complexity.
No one wants to put clients on a budget, and most are not interested in following one. Luckily, a cash flow plan is not a budget, and no adult babysitting is required. Instead, a cash flow plan can show clients how much they can safely spend on things they can control each week. Information doesn’t translate into change without action. An effective cash flow plan doesn’t just give clients recommendations, but shows them how to make one-time sustainable changes to their financial environment that make it easy to stick to their plan.
We put together six strategies that you can use to make a cash flow plan for every client a viable and profitable reality for your practice
1. Make sure clients are aware you provide cash flow advice.
If ever there was a time that clients needed far more than investment, insurance, and tax advice from financial professionals, it's now. Clients are at risk of making choices that could cause permanent harm to their finances if they don't have access to practical cash flow management advice.
A cash flow plan is not a budget, so it cannot be replaced with spreadsheets or expense tracking apps. Instead, it should help clients manage their current resources, and use behaviour-based changes to free up the funds to implement your recommendations.
If you’re already providing cash flow plans and advice, make sure it’s clear in all of your marketing, and that it’s part of every client’s experience. Consider the type of cash flow advice you offer now, and how your clients gain access to that advice. Do you offer a way for clients to work on their cash flow independently? Do you also have a way to collaborate through those tools to bring additional value?
Not providing cash flow advice? Find out more about incorporating behaviour-based cash flow planning into your existing process in our Behavioural Cash Flow Planning Workshop.
2. Model debt scenarios and measure debt progress.
Debt is part of most people’s lives. The debt side of your client’s balance sheet can impact your client’s net worth in a significant way, just like taxes, investment fees, and rates of return. Showing clients how changes in the way their debts are organized is an essential part of any well-rounded financial plan.
In addition to showing your clients various debt scenarios to help them reduce their total repayment costs, try calculating your client’s personal debt-to-income ratio as part of your annual review process. It’s one of the most effective ways to measure their debt progress at their life stage. Be sure to prepare your clients for the fact that their number might be higher than the average, especially if they are early in their careers or their mortgage.
For instance, clients in their 30's may owe $3.50 for every dollar they earn. Of course, they would prefer that number to be lower, but it’s not unreasonable for their stage of life. A client in their 60s would be in real trouble at $3.50. A more reasonable debt-to-income ratio for someone in their 60s would be below $0.50 for every dollar they earn. While zero debt would be lovely, even retired people with no consumer debt could be carrying a car loan. So it’s reasonable to expect that it won’t be zero for most people, no matter their age. This is an excellent financial vital sign to measure over time.
Wondering how much some debt decisions could impact your client’s net worth? Check out our blog post: How to lose a million dollars.
3. Update retirement plans based on cash flow.
If you do any kind of retirement planning, it should be based on cash flow. Too often, we see retirement plans built around goals that are set on a percentage of pre-retirement income, rather than the client’s projected retirement expenses.
Cash flow planning isn’t just for those with young kids and a lot of debt; cash flow planning is for anyone with cash flow. Retirees need to make the most of the money they’ve saved. Without a good projected retirement income need, that’s based on their likely spending, it’s tough to help them get on track for a comfortable life in retirement.
Revisit clients for whom you’ve already done retirement plans, but didn’t do a cash flow plan. It is an effective exercise to get clients to look at their current monthly expenses and think about which ones will go up, down, go away or be new expenses. For instance, health insurance premiums in retirement for those who leave the workforce before 65 are often a big surprise. It can be $300 to $400 a month that the client wasn’t expecting.
Learn more about cash flow-based retirement planning by watching our webinar.
4. Host webinars.
Depending on their occupation, some of your clients may not have attended a webinar before 2020. Over the last two years, we've seen that people are much more comfortable attending educational events from the comfort of their own homes or offices. Hosting webinars on cash flow planning for your clients and prospects is a great way to increase the impact of cash flow advice without putting a strain on your resources.
Online events are more cost-effective, malleable and accessible. Now is an excellent time to embrace webinars for your practice..
Have you always wanted to have guest speakers at seminars or client events, but the logistics were just too much hassle? It’s easier and cheaper now to access expert speakers with streamlined logistics to bring even more value to your clients. As an example, we’ve done some webinars with institutional, and employer customers and partners that attracted close to a thousand registrations for some sessions! People are eager to learn how a cash flow plan can help them get more life from their money.
5. Get your team involved.
Giving cash flow advice requires training, and you’ll need the tools to get the job done. However, it doesn’t have to be you that does most of the cash flow planning work. Assistants and associates are just as capable of being trained to do some, if not all, of the cash flow planning process.
Leveraging your team’s capacity to invest time and effort into cash flow planning isn’t just good for your business, it’s good for them. This new skill can open up a whole new career path at your firm, and enables your team to increase their impact on your business and clients.
Divide and conquer! Have your assistant or associate advisor watch our Behavioural Cash Flow Planning Workshop.
6. Give clients a way to share your advice with others.
Some financial advisors are taking cash flow planning seriously now, and some have for years. However, many could be stuck in their ways, unwilling to adjust their practices. If you’re offering clients proper cash flow planning, friends and family of your existing clients may need your help too. Your clients may not realize that every advisor doesn’t do what you do.
Make sure your clients are aware that your firm is growing. Let them know you’re looking for more people like them, who could benefit from getting more life from their money.
As a financial professional, you cannot do a lot to change the economic environment you and your clients live in. You can do a lot to change its impact on your client’s individual financial reality. Harness the power of cash flow planning, and help your clients get more life from their money now and in the future. It’s time for standardized cash flow planning to be the new normal in financial services.
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They tend to start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.