The scope of advisor advice continues to expand, and advisors can no longer limit themselves to one planning approach, expecting it to address all their clients’ unique and complex lives. Compounded by the need to consolidate and streamline technology, firms are using a single comprehensive planning platform that understands how the different components of a client’s financial life interact with their entire wealth management landscape—encompassing both cash flow-based planning and goals-based planning.
Let’s explore the two financial planning approaches and the clients that are potentially best suited for each.
Cash flow planning: It’s all about the details
Cash flow planning means tracking every dollar your client interacts with. We use the acronym S=I-T-E (Savings = Income – Taxes – Expenses) for cash flow planning. By considering income sources and deducting taxes and expenses, advisors can better understand a client’s spending potential.
Cash flow planning may be ideal for clients with advanced estate planning needs, pre-retirement cash flow considerations, intricate business owner structures, and high-net-worth (HNW) to ultra-high-net-worth (UHNW) individuals. Key aspects of cash flow planning include:
- A focus on the details, including cash flow and budget
- It demonstrates effective money management as you help clients prioritize savings
- It can address the complexities facing business owners
- It can allow for income categorization
- It is often suitable for clients who have difficulty quantifying goals
- It can provide greater opportunities for tax and estate planning for UHNW clients
- Because of the very nature of tracking cashflow, it is often a good choice for clients with extensive debt
Goal-based planning: Start with the end in mind
Goal-based planning begins by identifying and building a plan around a client’s goals, such as retirement, education funds, or travel. Prioritizing goals is key. In this approach, our equation is simple: S=S, meaning savings equals savings.
Goals-based planning can be ideal for clients who know their financial goals, want to actively shape their plans, and focus on the bigger picture. It begins with envisioning the end goal and assessing their current savings. This approach also:
- Let’s clients dream, starting with the end in mind
- Doesn’t require a detailed budget
- Swiftly determines if clients are on the right track
- Is easy for clients to understand
- Fits well with long-range planning
- Enhances collaboration as clients engage in plan creation
- Reviews savings, considers the market environment, and provides a probability of success
Who is best served by each approach?
Goal-based clients
- Have a good idea of their financial goals
- Want to get right to the point – what steps do I take?
- Ask about the big picture
- Want to get involved in creating their plan – especially, the fun stuff!
- Tend to be either moderate to high net worth
- Want clear and plain data
Cash-flow clients
- Need advanced estate planning and trust modeling
- Have pre-retirement cash flow questions – tax considerations, debt, affordability of expenses
- May be business owners with complex business entities
- May have granular income tax considerations
- Tend to high-net-worth (HNW) to ultra-high-net-worth (UHNW)
- Need to get into the details and granularity of the plan
From financial planning to implementation
From goals-based to cash flow planning, the Envestnet | MoneyGuide platform equips advisors with the tools needed to deliver personalized advice for clients at every stage of their financial journey. Today we offer a comprehensive platform that grows with the advisor’s business and client needs—allowing you to customize your planning approach based on your client’s individual needs.
The integration between MoneyGuide and Envestnet’s Wealth Management Platform offers a seamless connection between financial planning and implementation. Advisors can walk clients through every aspect of the planning process, while simultaneously crafting effective investment strategies that align with their goals and aspirations—and they can then execute on them within the same platform.
As the #1 financial planning solution1, MoneyGuide has revolutionized the advisor-client relationship by offering a platform with foundational to sophisticated planning and actionable insights to bring a financial plan to life for clients.
To see our platform in action, request a demo or give us a call at 1-800-841-5312.
