Challenging assumptions: Towards a new era of financial planning

The nature of client and adviser conversations is evolving. Not only is there a need to be mindful of changing demographics, attitudes and regulation, but there is also a need to stay in touch with improvements in financial planning, which are leading to better client outcomes.

In this three-part podcast, in association with Dynamic Planner, we take a thorough look at stress testing, decumulation and cashflow modelling. All three can play a vital role in ensuring that plans are robust enough to help clients meet their goals, and they also offer useful opportunities to properly demonstrate the value of comprehensive financial planning.

One thing to highlight is improvements in cash flow technology and stress testing. Cash flow plans are only as reliable as the assumptions that underpin them, and we discuss this in more detail here. We also look at the risks and limitations of relying on your own assumptions, and the shortcomings of straight-line projections.

Further to this, we consider stochastic forecasting, and why we can benefit from running a greater number of scenarios through the models that are in place. While there is a point at which this is no longer beneficial (this is roughly after 6,000 tests), planners can usually explain a plan and probabilities to clients with greater accuracy if more tests are run.

We devote one of the podcasts to decumulation, and whether it can ever truly be perfect; or at least as accurate as it can be. In this conversation we consider the steps that need to be taken when a client is about to enter or is starting retirement. This involves a consideration of risk and volatility management, and finding ways to make the journey as smooth as possible for the client.

We conclude by considering the client experience, and which elements of the service people appreciate most. Is the relationship between adviser and client the most important thing? Or are people usually far more interested in the returns they see in their portfolio each year?

The podcast also looks at value adds that can help to improve the client experience. This can be as straightforward as high-quality reporting and analysis. It can also include proper utilisation of technology and client portals that allow people to communicate more easily with their advisers and their financial planner. There is more demand than ever for digital communication, and with that comes a requirement for immediacy and navigable interfaces.

These three podcasts look at processes that all financial planners will be aware of and well-versed in, but it is important to consider how processes can improve. For advisers, this might mean delivering a better service or offering a more accurate and considered financial plan. For clients, it could be the difference between a stressful retirement and having peace of mind about their financial health. While retirement planning cannot tell us exactly what will happen for clients in their later years, it can, if applied correctly, make life a whole lot better for clients, and give them a confidence and security that is hard to place a value on.