Cash flow analysis critical to future of advice

Even with the electorate returning a Coalition government, the appetite for change is significant in light of the banking royal commission’s final report, multiple Productivity Commission reports and the aged care royal commission, according to advice portal wealthdigital.

Wealthdigital chief executive Wayne Wilson said cash flow analysis is a core element to be understood when providing any personalised advice.

However, he added that the practice 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.

“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,” Mr Wilson said.

“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.

“From providing guidance on a transactional purchase, such as insurance, to offering ongoing services, such as wealth accumulation, knowing how much the client has in excess (or negative), cash flow is crucial.”

Mr Wilson said automation is important to providing cash flow analysis in a cost-effective manner, adding that 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.

“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,” Mr Wilson said.

“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 opportunities as providing lending advice and helping clients save money on basic costs, such as utilities.”

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].