Business planning for the future – cash flow analysis

23rd May 2019

In March, wealthdigital released a white paper on the future of financial planning in Australia. A core observation of the paper was the need for advisers to realign their advice services from those that are product-driven to those that drive the achievement of client goals.

The white paper identified a range of product-agnostic services that will be central to this change. Over the coming months, wealthdigital’s Business Coach newsletter will focus on these services. It will examine why they are important and how they can be included in a business’ client value proposition in a sustainable fashion.

This month’s Business Coach newsletter will take a closer look a cash flow modelling and management.

Why cash flow advice?

Almost all financial advice models focus on cash flow analysis as a core element to be understood when providing personalised advice. In practice, however, it is often only undertaken in a perfunctory fashion, with clients simply stating their estimated inflows and outflows per month or per year in a fact-finding document. Expenditure is attributed to broad categories and the client’s stated estimates are commonly accepted as truth without further investigation.

While this approach integrates cash flow analysis into the advice provided, it does not present this analysis as a service in and of itself. Such a service can be highly valued by clients, both young and old, as regaining control over an imbalanced family budget is a universal concern.

Central to current models

Looking at current advice services, there is almost no area of financial advice that wouldn’t be improved by a rigorous cash flow modelling approach. Whether the planner is providing guidance on a transactional purchase, such as insurance, or ongoing services, such as wealth accumulation, knowing how much the client has in excess (or negative), cash flow is crucial. If cash flow is not properly determined, any models of future performance or product affordability are useless.

Not only is establishing accurate cash flow data important for clients looking to determine how much of a new product they can afford (such as insurance or a mortgage), it is a fantastic tool to keep ongoing clients engaged. Interrogating and revising cash flow estimates at regular planner/client meetings is an excellent way to keep clients focused on a long-term goal, as well as to ensure the assumptions used in future modelling remain relevant. There is no faster way to derail a plan than to discover that the client’s estimated $1,000 positive cash flow in any stated period is, in fact, significantly lower than that.

Relatively low regulatory impact

Currently, advice is regulated, by and large, on a product level. The core question considered when reviewing client files tends to be, “was the product the adviser recommended appropriate for the client?”. In fact, ASIC defines a financial service as:

Providing financial product advice or dealing in a financial product.

Cash flow analysis and monitoring is not a product-driven service. It may inform certain product decisions but it can also stand alone. As such, the only real impost on the adviser from a regulatory point of view is to understand the client’s situation.

Put simply, if an adviser is providing stand-alone cash flow analysis and modelling, there is no need to issue a Statement or Record of Advice. Until it becomes the basis on which product advice is provided, cash flow analysis is not a financial service.

Low regulatory cost, low cost to monitor

Not only does cash flow analysis have a low regulatory cost, it can be monitored by the client comparatively cheaply using any one of a number of online tools. Most banks provide some level of cash flow breakdown as part of their online banking experience. It should be noted, however, that these banking tools can often be cumbersome and hard to manipulate. The hard truth is that a client who manages their cash flow well is not a very profitable one for the bank.

There are many cash flow monitoring apps on the market that can be used by clients, and in some cases, their planners, to manage cash flow. Products like Moneysoft, Moneybrilliant, Pocketbook and MyProsperity all provide a wider range of tools to help clients understand their cash flow than the standard online banking options. These options are not all free but the costs rarely exceed $20 per month.

How do I integrate cash flow management into my CVP?

How a planner best integrates dedicated cash flow analysis into their Customer Value Proposition (CVP) largely depends on their target market. In March’s white paper, we identified 3 major models that will predominate the advice market by 2030:

  1. High net worth (HNW) investment advisers with ongoing client relationships. This includes the potential to have some high-value transactional services, such as property buyer agency or stockbroking, as well as SMSF specialisation.
  2. Transactional, broad-based advisers. May include some short to medium-term recurring services, such as financial counselling, as well as non-traditional transactional services, such as mortgage broking.
  3. Aged care adviser specialisation. May include some additional specialised services such as estate planning and some ongoing investment management for high net wealth clients.

As discussed above, HNW clients in ongoing adviser relationship can have cash flow analysis built into their review process. It is an essential service when tracking the client’s wealth accumulation anyway and a more thorough and verifiable process can be factored into the ongoing advice fee structure.

Advisers providing transactional services can approach the integration of cash flow analysis a few ways. It can be a stand-alone service offered to transactional clients with a set cost to help the client set-up their cash flow monitoring tool and another fee to provide ongoing support and interpretation of results. Alternatively it can be a baseline requirement for the adviser to provide transactional advice – with detailed cash flow analysis over a set historical time period essential to provide advice on a product or class of products.

Advisers providing specialised aged care advice should already have cash flow analysis built into their process. Where a client is entering aged care, most of the pertinent decisions, such as which facility to choose and whether to sell the family home, will be heavily influenced by the client’s ability to meet their aged care fees. A more rigorous cash flow analysis process may add incrementally to the cost of providing such advice but will ensure the advice is better suited to the client’s situation.

Data collection

The starting point when looking to enhance cash flow analysis as an advice offering is in the data collection stage. In the case of many practices, this will mean going beyond the minimum fact-finding processes required.

It is feasible to start with client estimates of income and costs, however greater specifics should be requested. Rather than just enquiring about costs on a high level, dig deeper into the estimate. If the client estimates they spend $x a year on holidays, how much is on transport? How much on accommodation? How much on meals? How much on activities?

Costs need to be classified into discretionary and non-discretionary. This will help you and the client identify which costs can be minimised if necessary (discretionary costs) and which cannot (non-discretionary costs).

Whether or not the starting point of data collection is a set of client estimates, hard data needs to be used to establish verifiable costs. This can be achieved by feeding banking transactions through dedicated cash flow software for a minimum period of time (ideally no less than 12 months). It may be that verifiable data is required immediately, in which case it may be best to start with a breakdown from the client’s banks online tools. Realistically, to provide cost-effective cash flow analysis, this process needs to be automated.

The expense verification process may prove to, itself, be a client engagement process. Anecdotally, many advisers who undertake this process find that clients habitually underestimate their annual costs. Studies support this observation, particularly as it relates to irregular expenses. This is the case whether they are high, medium or low income earners. Helping the client acknowledge this gap between perception and reality can help establish why the adviser’s cash flow analysis process is so valuable.

Data analysis

This, again is a process that can be conducted automatically through dedicated software. Commonly this would involve grouping individual outgoings into categories and subcategories. Clients that transact primarily using cash will not be good candidates for this process.

Goals need to established and the data from the cashflow analysis will feed into deciding whether:

  1. A goal is achievable,
  2. Behavioural change is necessary to achieve a goal, and
  3. If achievable, the length of a reasonable timeframe in which the goal can be achieved.

If the goal is a medium to long term goal, this process of analysing cash flow data and revising the approach to the client’s goals will be one best undertaken periodically. In this way, the adviser operates more like a coach, helping keep the client on track to achieving what they desire.

Advice model

Providing cash flow analysis as an advice service will need to be properly costed to ensure it is a profitable exercise for the advice business. For some clients, likely those in the HNW model, the cost will be easily absorbed into annual advice fees. Where transactional advice is being provided, pricing the service will be an important factor in ensuring its success as a client proposition.

There will be a range of costs when providing cash flow analysis that you will need to consider. These include:

  • The adviser’s time spent fact-finding and establishing verified expense data
  • The adviser’s time meeting with the client initially – including time taken to set up any software used
  • The monthly cost to the client of the cashflow software. Most commonly used packages cost between $10 and $20 per month
  • The adviser / staff member’s time preparing for review meetings
  • The adviser’s time conducting review meetings and producing tracking reports

How frequently an adviser or their staff communicate with the client will have a major impact on the cost of providing this service.    Most software solutions allow easy to understand reports to be generated, so it may be that such reports are provided by the adviser or their staff to the client quarterly, with an annual face-to-face meeting. These reports can track real-time progress against a budget or plan.

For lower contact clients, the service provided by the adviser may be as simple as helping them set up their cash flow analysis software. That said, cash flow analysis lends itself to such crossover planning as providing lending advice and helping clients save money on basic costs, such as utilities. Mortgage advice will require additional training and regulatory oversight but can be a lucrative service that requires many of the same processes as traditional financial planning services (fact-finding, product matching etc).


Cash flow analysis is a process already part of the provision of financial advice. Providing it with greater focus, and holding clients accountable for their spending, can turn it from an incidental service to one that is central to an adviser’s practice.

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