Summary
Traditional Cashflow Modellers | Timeline Planning |
Relies on fixed rates, overlooking market volatility | Uses economic historical data for realistic scenarios |
Ignores sequence of returns risk and tax implications | Incorporates stress-testing and tax modeling |
Limited flexibility in adjusting plans for changing needs | Allows for dynamic adjustments based on changing circumstances |
Lacks integration with major platforms and CRM systems | Enhances efficiency through integration with major platforms |
Limited scenario analysis and inadequate risk assessment | Provides robust scenario analysis and comprehensive risk assessment |
Inaccurate projections during economic downturns | Accounts for market volatility and economic downturns |
Manual data gathering and analysis | Automates data gathering and analysis through a fact find and risk profiling |
Manual portfolio management and rebalancing | Offers model portfolio solutions (MPS) for automated portfolio management |
Manual financial planning process | Streamlines financial planning with automated tools and workflows |
Description
In the world of financial planning, the tools we use can significantly impact the advice we provide. Let's consider the experiences of two financial advisors, Tom and Tina, who use different tools for their financial planning - Tom uses a traditional cashflow projection tool, while Tina uses Timeline Planning.
Case 1: Planning for Retirement
Both Tom and Tina were approached by a client, Mr. Smith, a 60-year-old man planning to retire in five years. He had a diverse portfolio of assets worth £500,000.
Tom, using his traditional cashflow tool, projected a fixed 5% annual return on Mr. Smith's portfolio and a steady 2% inflation rate. Tina, on the other hand, used Timeline Planning, which used historical economic data to create a range of potential scenarios.
When the COVID-19 pandemic hit, causing market volatility and a surge in inflation, Tom's projections fell short, leaving Mr. Smith with a significant income shortfall. Tina's Timeline Planning, however, had already accounted for such scenarios, and Mr. Smith's retirement income remained secure. Thanks to using historical economic data, Tina had already accounted for previous pandemics such as the Spanish flue.
Case 2: Navigating Market Volatility
Consider another client, Mrs. Jones, who had a substantial investment portfolio. Tom's traditional tool projected steady growth for Mrs. Jones's portfolio. However, when the Brexit vote led to a sharp drop in the stock market, Mrs. Jones's portfolio took a hit, and the projections were off.
Tina, using Timeline Planning, had already stress-tested her client's portfolio against historical market downturns, including events like Brexit. Her client was better prepared for the market volatility and was able to navigate it without panic.
Case 3: Accounting for Inflation
Finally, let's look at a young couple, the Browns, saving for their child's college education. Tom's tool used a fixed inflation rate, which didn't account for periods of high inflation. When inflation spiked, the Browns found themselves falling short of their savings goal.
Tina, however, had used Timeline Planning's historical data to account for potential inflation spikes in her projections. Using historical inflation, Tina had already accounted for hyperinflation years such as the 1970s. Her clients were able to adjust their savings plans accordingly and stayed on track to meet their goals.
Conclusion
In conclusion, while traditional cashflow projection tools can provide a rough estimate, they often fall short in the face of real-world volatility and unpredictability. Timeline Planning, with its use of historical data, stress-testing, and tax modeling, provides a more comprehensive, accurate, and reliable approach to financial planning.