The FCA’s warnings to advisers to be cautious about cashflow modelling have been welcomed by Dynamic Planner’s head actuary, Steph Willcox.
Willcox said there has been a push towards the practice in the wake of consumer duty, which was introduced in July 2023.
Last week (March 20), the regulator told advisers not to rely on cashflow modelling without stopping to consider whether it is accurate or not, as part of its retirement income advice thematic review.
Willcox said: “After consumer duty came in, industry-wide we saw a real push for cashflow planning, because from an adviser perspective it helps to prove the value for money that they're giving.
“Advisers were thinking, ‘well I should be using cashflow planning to prove the advice and the value that I'm adding to my clients’, and then possibly people have gone a little bit too far with it and not necessarily grasped the concept of why we should be doing cashflow planning in the first place.
“This review comes at a brilliant time where people have probably started to develop their cashflow planning process for most clients, if not all, and now they can really take a step back and understand exactly what they were trying to achieve with that cashflow plan in the first place.”
In its review, the FCA found instances of advisers not challenging clients on figures provided when using cashflow planning.
There were instances where income and expenditure indicated savings were available, but the client had no savings.
There were also instances of advisers not thinking about future lump sum needs such as replacing cars or carrying out home maintenance.
Willcox added the FCA’s focus on vulnerability is another positive aspect of the review.
The regulator found vulnerabilities remain “an afterthought” in some firms rather than being “front and centre of their process design”.
This is something Dynamic Planner has also considered and is why it introduced a wellness questionnaire before the consumer duty introduction.
Willcox added: “Being aware of the state that your clients are in is important - Are they in the right frame of mind to be making big financial decisions? - Particularly if you're going to go on and make them a big recommendation.
“All of that is going to really tie together because naturally cashflow planning quite often leads to a recommendation.”
tara.o'connor@ft.com
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