Alleviating client concerns during times of volatility via effective cashflow modelling

As financial advisers, you’re likely all too familiar with the sense of unease that can ripple through your clientele when markets demonstrate unpredictable behaviour.

In today’s complex financial landscape, market volatility and economic uncertainty can emerge without warning, often causing clients to harbour increased anxieties concerning their financial well-being.

I’m sure we can all agree that the role of a financial adviser involves more than just monitoring investments and providing advice—it involves keeping clients reassured about their financial future, particularly during challenging economic times.

And the best way to achieve this?

In our experience, one of the most powerful tools for providing this assurance lies in an often underestimated aspect of financial advisory practice: cashflow modelling.

While it’s no crystal ball, cashflow modelling would have to be the next best thing; providing clients with a holistic view of their current financial standing and their future outlook.

Effective cashflow modelling is not merely about providing data; it’s about taking a step back and looking at the bigger picture.

Understanding client anxiety and the role of cashflow modelling

Clients often view their financial future through the lens of their present circumstances.

During periods of market volatility, feelings of concern and uncertainty can be heightened. Clients may fear the worst – loss of wealth, depleting savings, or even a disrupted retirement plan.

A well-crafted cashflow model can offer the necessary perspective, providing a comprehensive overview of a client’s current financial situation while also simulating future scenarios – both positive and negative. It can reveal the impact of market volatility on a client’s portfolio, evaluate the resilience of their financial plan, and illuminate the path to their financial goals.

Maintaining Control During Turbulent Times

In uncertain times, control can often feel elusive.

With cashflow modelling, clients regain a sense of control over their financial futures. The data-driven insights derived from these models equip clients to evaluate different strategies and make informed decisions. It shifts the conversation from worrying about market volatility to focusing on effective management of personal finances and strategies to stay on track.

Cashflow modelling brings a degree of predictability to an otherwise unpredictable landscape. It doesn’t promise the elimination of market volatility but offers a means to plan, prepare, and navigate through it.

Empowering Clients with Data-driven Insights

Cashflow modelling does more than quell fears; it transforms worries into understanding and promotes active participation.

It helps clients see beyond the abstract figures of market indices, demystifying how market movements could influence their financial journey.

This visual, tangible information brings clients closer to their finances, empowers them to make informed decisions, and cultivates a sense of ownership.

How you can use cashflow modelling to alleviate client concerns during times of volatility 

Cashflow modelling, in essence, is the process of mapping out a client’s financial future based on their current financial status, anticipated income, planned expenses, and potential financial risks.

It’s a tool that provides a realistic and comprehensive picture of a client’s financial journey and potential outcomes.

One of the most significant advantages of cashflow modelling is the ability to simulate various financial scenarios, akin to a road map that includes various routes and alternatives.

The goal is to give clients an understanding of all possible pathways, each with its potential outcomes.

1. The Baseline Scenario:This provides an overview of the client’s current financial position and shows where they would end up if everything continues as is. It provides the starting point for all future discussions and scenario planning.

2. Best and Worst Case Scenarios:Here, you can delve into the realm of volatility and its potential effects. The best-case scenario showcases the result of positive market developments, while the worst-case scenario gives an idea of the financial position if negative market trends persist. These scenarios can help manage expectations and help clients prepare for various market conditions.

3. Contingency Plans:Another option is to consider ‘what if’ situations. These scenarios can be a great tool to address any particular concerns a client might have, from an unexpected job loss to a sudden market downturn. Contingency plans can highlight the buffer available to navigate through financial emergencies.

But beyond just illustrating the impact, this process offers an opportunity for a constructive dialogue. If a model shows potential vulnerabilities in a client’s financial strategy, advisers can use this as a starting point to discuss necessary modifications.

Why your clients shouldn’t be afraid during times of volatility

Intellectuals solve problems, geniuses prevent them. -Albert Einstein 

While cashflow modelling can be a great tool to alleviate client concerns during times of volatility, prevention is always better than a cure.

So, how do you prevent your clients from being afraid during times of volatility?

Prepare them for it – 

We all know that market volatility is to be expected, but it’s important for clients to know that we’ve prepared for it. By educating your clients about the impacts of market volatility in advance, you can help them to feel prepared and confident for when times of volatility do arrive.

Keep them goal focussed – 

The beauty of goals-based advice is that it provides clients with a focus that rises above the day-to-day movements of investment markets.  The most important question is not “How has my portfolio performed?”, it’s “Am I on track to achieve my goals?”.

Your ongoing client relationship should be built around answering this question.

Strategy trumps Returns – 

If your ongoing client reviews are built on investment performance, you’ll forever be riding the roller coaster of year-on-year returns. Similar to the above, it’s important to shift the focus of ongoing conversations from investment returns and instead centre around strategy discussions and the long-term picture.

As we said, while cashflow modelling can be a great tool to alleviate client concerns during times of volatility, we think an even better approach is to integrate cashflow modelling throughout the advice process, from the early stages of preparing their initial financial plan right through to the ongoing review process.

By integrating cashflow modelling into your advice process, you can:

• Prepare your clients for market volatility by demonstrating the impact of unfavourable market conditions on their financial plan,
• Keep your clients goal focused by showing them how they are on track to achieve their goals, and
• Get off the return roller coaster and instead help your clients to put their bigger-picture glasses on.

Remember, cashflow modelling is more than just number crunching; it’s a tool for alleviating concerns, motivating progress, and illuminating the path towards financial goals. Cashflow modelling allows for a shift in focus from immediate market fluctuations to long-term progress and resilience. It’s an empowering tool that helps clients navigate their finances with confidence.

So, are you ready to transform your client advisory experience with cashflow modelling? To learn more about how cashflow modelling can enhance your practice and support your clients, reach out to the intelliflo team today.