Financial Planning

Cashflow planning and analysis [CPD Quiz]

01 August 2020

Rob Lavery

Rod Lavery is Technical Manager at knowIT Group.

In 2019, wealthdigital released a white paper on the future of financial planning in Australia over the next decade1. 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.

There are a range of product-agnostic services that will be central to this change. One of the main services highlighted was cashflow modelling and management. So, why cashflow advice and how can financial planners include it in their client value proposition (CVP)?

Why cashflow advice?

Almost all financial advice modelling requires cashflow analysis to be performed when providing personalised advice. To determine whether strategies are achievable, first you must establish whether the client can afford to implement them.

In practice, however, such analysis 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 cashflow 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.

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 cashflow 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) cashflow is crucial. If cashflow is not properly determined, any models of future performance or product affordability are useless.

Not only is establishing accurate cashflow 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 cashflow 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 cashflow 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 planner recommended appropriate for the client?’ In fact, ASIC defines a financial service as: Providing financial product advice or dealing in a financial product.

Cashflow 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 planner from a regulatory point of view is to understand the client’s situation.

Put simply, if a planner is providing stand-alone cashflow 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, cashflow analysis is not a financial service.

Low regulatory cost, low cost to monitor

Not only does cashflow 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 cashflow 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 cashflow well is not a very profitable one for the bank.

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

Integrating cashflow management into the CVP

How a planner best integrates dedicated cashflow analysis into their CVP largely depends on their target market. In the white paper, we identified three major models that will predominate the advice market in a decade’s times:

  1. High-net-worth (HNW) investment planners 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 planners. 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 planner specialisation. May include some additional specialised services, such as estate planning and some ongoing investment management for HNW clients.

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

Planners providing transactional services can approach the integration of cashflow analysis in 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 cashflow monitoring tool and another fee to provide ongoing support and interpretation of results. Alternatively, it can be a baseline requirement for the planner to provide transactional advice – with detailed cashflow analysis over a set historical time period essential to provide advice on a product or class of products.

Planners providing specialised aged care advice should already have cashflow 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 cashflow 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 cashflow 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 cashflow 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 bank’s online tools. Realistically, to provide cost-effective cashflow analysis, this process needs to be automated.

The expense verification process may prove to be a client engagement process. Anecdotally, many planners who undertake this process find that clients habitually underestimate their annual costs. Studies support this observation2, 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 planner’s cashflow analysis process is so valuable.

Data analysis

Again, this 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 be 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 cashflow data and revising the approach to the client’s goals will be one best undertaken periodically. In this way, the planner operates more like a coach, helping keep the client on track to achieving what they desire.

Advice model

Providing cashflow 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 cashflow analysis that you will need to consider. These include:

  • The planner’s time spent fact-finding and establishing verified expense data.
  • The planner’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 planner/staff member’s time preparing for review meetings.
  • The planner’s time conducting review meetings and producing tracking reports.

How frequently a planner 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 planner 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 planner may be as simple as helping them set up their cashflow analysis software. That said, cashflow 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 and so forth).


Cashflow 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 a financial planner’s practice.

Rob Lavery is Technical Manager at KnowIt Group.





To answer the following questions, go to the Learn tab at

1. Which of the following advice areas require cashflow analysis to be performed to ensure recommendations are in the client’s best interest?

a. Life insurance.

b. Superannuation contributions.

c. Debt management.

d. All of the above.


2. Does undertaking cashflow analysis for a client require a financial planner to provide a Statement of Advice?

a. Yes, in all circumstances.

b. Yes, but only if it is used to support a product recommendation.

c. No, in no circumstances.

d. No, unless the client specifically requests one.


3. Raymond is looking for an ongoing relationship with his new financial planner, Sarah. Sarah will help Raymond achieve his retirement goals, as well as ensuring Raymond and his family have adequate life cover. Which of the following statements is true regarding the services Sarah provides to Raymond?

a. Sarah should perform a cashflow analysis of Raymond’s situation before providing initial advice to Raymond.

b. A review of Raymond’s cashflow situation should be built into Sarah’s ongoing review process with Raymond.

c. Both of the above.

d. Neither of the above.


4. Taylor conducts cashflow analysis as part of his advice to client, Ursula (50). Ursula said she would like to retire at age 60 on $75,000 per annum. Taylor’s discovery process determined that Ursula has $300,000 in financial assets (including superannuation) and currently has a slightly negative cashflow position, which is managed using a mortgage offset account. Which of the following answers (you may choose more than one) are correct when Taylor considers the cashflow analysis in relation to Ursula’s goal?

a. Ursula’s goal is achievable in her current financial state.

b. Ursula will need to undergo financial behavioural change in order to achieve her goal.

c. Ursula may need to lengthen the desired timeframe in which she achieves her goal.

d. Regular reviews will be necessary to track Ursula’s progress towards her goal.


5. Betty is a planner who decides to make cashflow analysis using an automated software solution, Cashware, which is a core element of her advice services. Betty reviews her service packages and decides to leave her pricing unchanged, with the only additional cost to the client being the Cashware subscription. Which of the following statements is true?

a. Betty will be able to generate a new income stream using her cashflow analysis service.

b. Betty’s cashflow analysis service will be loss-leading, but it will enable her to provide more detailed and informed advice to clients.

c. Betty’s additional service will be cost neutral to her business.

d. None of the above.