It has never been more important to incorporate cashflow modelling into your financial planning process. Many financial advisers have invested in professional software packages to help them evaluate capacity for loss, the achievability of objectives, and the sustainability of life in retirement plans.

Michael Pashley breaks down the magic and the maths to demonstrate how cashflow modelling works, using one of your existing desk top tools, Microsoft Excel.

Michael says, “It doesn’t matter which software package you use; the maths is the same. I’m going to lift the bonnet and explain how it all works. I’ll show how to describe and annotate cashflow models to explicitly evidence the suitability of your advice so that it is crystal clear for your clients and any tile reviewers!”

Learning outcomes

• How to produce simple deterministic cashflow models using MS Excel
• How to present simple deterministic cashflow models to clients in suitability report

Specifically,

• Cashflow models for income objectives, including capacity for loss and stress testing
• Cashflow models for growth objectives, including capacity for loss and stress testing
• The practical difference between ‘nominal’ and ‘real’ cashflow models
• The maths behind ‘in advance’, ‘in arrears’, and working with models that run out of money
• Presenting, annotating, and describing cashflow model outputs within suitability reports, so that they evidence the suitability of the advice.

Please note this demonstration focuses on deterministic cashflow modelling, not stochastic or Monte Carlo.