Updated on: November 3, 2023

Today’s financial advice clients are expecting more out of the planning process: More personalization, coordination, and visualization for the future they’re building toward. They’re not working a 9 to 5 for decades and then retiring. Instead, their finances are complex: They’re creating streams of passive income, building businesses, working in the gig economy, and pursuing financial independence.

Enter the midyear cash flow plan. This simple client review meeting can yield empowering results that can deliver on those expectations.

Cash flow management is about more than subtracting total outflows from total inflows to produce a net cash flow number, or setting a budget. A budget is not cash flow. You’re tracking actual expenses versus planned expenses, and that’s somewhat like driving down the road while looking at the rearview mirror. Your focus is on spending.

Cash flow is the whole picture—not just a corner of it. It’s organizing your income and your spending, and taxes. It means helping clients plan for big purchases, maximizing what they spend, and generally helping them get the most out of their resources.

That’s why leading-edge practices lean into cash flow planning. A survey of RIAs showed that 94 percent of firms classified as “elite” offered cash flow planning.¹ Around 35 percent of all advisors offer the service.²

An Impactful Client Review Meeting

With technology, advisors can easily take on this granular task. A client portal that aggregates all accounts—held away assets and liabilities—as well as those under care into one comprehensive financial picture has become table stakes. A 2022 study showed that 62 percent of practices use a client portal, though 73 percent of clients desire one.³

Consumers understand that there’s value in analyzing the details of where the money is going. Around 88 percent of consumers say that offering an advisor access to their monthly spending activities to develop a spending plan would be impactful, according to a survey commissioned by the CFP Board.⁴

Below we examine three scenarios of what a midyear cash flow check-in might look like, including resources that can help you further personalize the interaction.

Scenario 1: Pre-retiree with a Windfall

As you’re running the numbers for a midyear cash flow check-in with your client, you see that there’s a substantial inflow. During the meeting, your client explains that it was a retention bonus.

Now comes the part where you can add value—going back to what your client has told you about their spending priorities and their short- and long-term goals to propose ways to maximize this windfall. You’ll also want to suggest ways to minimize the tax impact that comes along with the bonus, and because it’s midyear, you have many options for doing that.

With interactive financial planning software, you can walk them through a couple of options for using the bonus money and show how it impacts their financial plan. This can help them make the decision with confidence and remain engaged in what is now a living, breathing plan that updates along with the important moments in their life.

For more insight into how advisors keep pre-retirees engaged in their planning, watch Prove the Power of Planning to the DIY Investor:

 

Scenario 2: New Retiree Facing Inflation and a Down Market

A recently retired client may feel a bit uncomfortable having their finances put under a microscope for a midyear cash flow meeting. Tell them to think of it as a checkup. If you want to know what’s going on with your health or wealth, it’s useful to run some tests, leveraging the power of technology. That’s especially crucial at midyear when there is still time to make course corrections.

In this scenario, a new retiree is facing heightened inflation as well as turbulence in the markets. Drawing too much money from his portfolio too soon in retirement exposes him to “sequence of return” risk—the risk that taking too much money from the portfolio early on in a bear market can deplete it before better returns show up.

Using planning software, we can show some different options to deal with this scenario. Maybe it’s an ideal time to tap an asset that isn’t impacted by the markets that can help ease the stress on the portfolio. Maybe there are new opportunities to curb spending. These small changes, given time, can have a significant impact.

To explore how you can illustrate things like sequence of return risk, watch 5 Ways to Add Sizzle to Your Stress Tests:

 

Scenario 3: A Young Client with Overspending Patterns

When you start examining your client’s cash flow, sometimes you find an unexpected spike in spending. It happens to the best of us—your client’s roof sprang a leak and needed replacing, or their beloved pet needed surgery. There are lots of explanations. However, if this is a continued pattern of mindless overspending and you’re concerned, it’s time to address it with an empathetic approach.

In this way, you’re acting as an accountability partner, reminding the client of what their goals are and gently guiding them to reduce spending that doesn’t align with their priorities. A recent study backs up this approach. It showed that 40 percent of Millennial clients said they view their ideal advisor as a life coach.⁵

Striking the right tone is critical. To learn more about how to approach this conversation, watch From Client Resistance to Action:

 

The Balance Sheet and Beyond

For every stage of life, cash flow planning can help clients optimize their overall financial picture. Knowing the balance sheet inside and out can help both the advisor and the client get a better grasp on where the money is going and where it is best used in pursuit of their ideal financial future.

Sources:

1. InvestmentNews. “Elite RIA Study: How Top Firms Are Embracing a Holistic Approach to Wealth Management.” December 2021.

2. Investments & Wealth Institute. “Executive Summary: 2020 Investor Research.” April 2020.

3. InvestmentNews. “2022 InvestmentNews Advisor Technology Study,” January 2022.

4. Certified Financial Planner Board of Standards, Inc. “Consumer Views on Personal Cash Flow Planning.” January 2019.

5. “Future of Client-Advisor Relationships,” AIG and MIT AgeLab, 2020.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

You may also be interested in...