I recently spoke to an advice firm who wanted to understand why they were suddenly seeing significant outflows of assets – where was that money going, and why?
My answer? The clues are in your financial planning data.
You might be familiar with the Tom Cruise movie Minority Report. In the film, the powers of mutant clairvoyant humans known as ‘precogs’ are used to predict crimes before they happen.
Today, the information firms collect in the financial planning process can serve as an early warning system for their businesses in a similar way.
Across the advice industry, firms are recognising the power of data. Everyone is familiar with the term ‘tech stack’ – something I’m not sure I could have said 12 months ago, and certainly not 24 months ago.
Everyone is looking for deeper integration. Everyone recognises that the drive for productivity requires their systems of record to talk to each other and push the information back to the practice management system as the golden source.
What firms might not know yet is that through this joined-up approach to tech, they can unlock the particular predictive ability of their financial planning data.
During the planning process, advisers capture a huge amount of data on their clients: their demographics, their current status, their expectations and objectives. By pulling that data back to their golden source, firms can harness it to help them make better decisions and manage their risks better.
Financial planning is a precursor to advice, which is a precursor to transactions. When you can see what’s being planned, you can understand in advance how clients are going to be advised – and how, when and where the money is likely to flow.
You can look at whether clients are in accumulation or when large tranches might move into decumulation. You can identify when clients might need money to pay off the mortgage or to fund care, or when they might start to think about generational transfer of wealth.
If advisers are building cash flow plans, firms can see what the outcome of those plans is likely to be – for their clients and for their businesses.
Compliance teams, too, can gain a huge insight into the planning process and anticipate problems before they happen. Are people being planned at the right level of risk? Are recommendations operating within target markets?
By focusing minds on the annual review, the consumer duty has increased the frequency and regularity with which firms are collecting this data, making it even more useful. Firms of all sizes, large and small, have embraced the annual review process and are running reviews for all their clients, every year.
That regular check-in with clients’ situations and objectives, their wealth and their shifting demographics, their buys, sells and holds, gives firms an invaluable picture of exactly what is coming downstream.
