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Delivering excellence in financial planning – Julie Lord on cashflow modelling and the power of paraplanning

  • By Jason Stockwell

Sue Whitbread talks to Julie Lord CFP FCSI FPFS, Director at Prestwood Software and CEO at Magenta Financial Planning about why paraplanning and cash flow modelling are key ingredients for success in financial planning


SW: Julie, you’ve got many years of experience running great financial planning firms. What would you say is the secret to your success?
JL: There are lots of reasons why I’ve been successful but principally it’s having the right people to support me and having the right tools.

I love doing what I do – giving lifelong financial planning advice to clients. I think this involves a wide-ranging skill set. As planners, we have to be technically qualified whilst also sticking to a rigorous regulatory framework. But, we also have to have exceptionally strong interpersonal skills.

My clients really value me because I instil in them trust and confidence. So, it makes sense for me to focus on that area and use my team of paraplanners and administrators to take care of the others. I also ensure that we all have the right tools to do our jobs properly.

SW: Have you always run your business the same way?
JL: I used to have a financial planning business many years ago, where we had a top-heavy, inverted pyramid of the advice model: many planners at the top, effectively working for themselves, supported by a small number of paraplanners and administration staff. Advisers had their clients and would tend to complete everything involved in the planning process with the exception of processing any applications (though in many instances advisers did this themselves also). As the boss, I realised that actually, managing lots of advisers kept me away from doing what I love – advising clients.

So, I inverted my pyramid and created a business with just two planners at the top, supported by a team of paraplanners. In this way, I have been able to become far more profitable. Using a paraplanner has freed up more of my time to focus on giving advice, and therefore accurately charging for that advice.

SW: Do you recommend recruiting a paraplanner directly to work in house, or is outsourcing this job just as effective?
JL: Paraplanners do not need to be employed at a financial planning firm. There are now a number of outsourced solutions offering services to firms, as and when they need them, which can be more convenient and cost-effective.

Outsourcing paraplanning can be useful, especially if you are thinking about taking on a paraplanner full time and are looking to see how and where they might work with you. However, it is important that even if you outsource, you and the paraplanner are using the same financial planning systems. A highly technical and qualified individual who can offer skills in addition to those of the adviser is expected, but at my firm, for example, we use Prestwood’s Truth cashflow modelling tools – why would I want a paraplanner who insists on using a different tool? Or indeed, is not technically proficient in using the cashflow system itself?

SW: Why is it so important for paraplanners to use cashflow modelling tools?
JL: Paraplanners do all the research and planning before any meeting with a client. Whatever kind of meeting I’m having, the paraplanner is responsible for looking through the various cashflow scenarios that might affect the client in advance of the meeting. This is so I can be fully apprised of all situations when face to face with the client. They build it, input data, analyse the output, review the cashflow. If the client has a specific goal they build a scenario to see if it works or not and then I go through it. Because the paraplanning has produced real scenarios that can take place if the client takes one particular action or another, it gives the client a reality check.

SW: Could you give us a recent example?
JL: Yes sure. One of my clients wanted to retire from work at 55, but their DB pension scheme did not pay out until aged 65 and they were thinking of transferring out of the scheme.

From the cashflow prepared by the paraplanner, you can see how the rest of their life might look if they were to take advantage of the generous DB transfer offer: on the face of it they were better off transferring, right up to about age 96. If they survive beyond this, they’ve got less to spend, but still, die with money in the bank.

It’s the job of the paraplanner to stress test the cashflow scenario. During the 2007-8 financial crisis, markets fell 21% in a single day. On Black Monday (October 19th 1987) markets fell 28.3% and we always use this as a talking point for clients.

Using the Truth’s Market Crash Simulator, we can see what would happen if the client took the DB transfer, got the agreed x% return up to retirement, but then suffered a 30% loss on their portfolio (i.e. worse than either of the crashes mentioned above):

They would run out of money in their late 70s. The transfer starts to look like less of a good idea – but it is an important lesson to show how much of the stress-testing and research was eliminated from my job because of the work my paraplanner did beforehand.

SW: Do the paraplanners actually attend your client meetings?
JL: Yes, this is something I’ve introduced fairly recently and it seems to be working well. Previously, I used to feel that if the paraplanner was in a client meeting alongside me, it was simply an unnecessary waste of time (and a cost to the business). However, I found that there were times when my paraplanner came up with solutions and options during their research or preparation of a client report, that the client didn’t actually want. Even though my notes were clear, from a technical perspective, my paraplanner thought more scenario planning was better than just one or two. Was this a case of showing off technical skills or failing to follow direction? Either way, I decided having my paraplanner in the client meetings with me made our service seamless. Having a team approach ensures that there is always a point of contact for the client, and ensures that by using each individuals’ strengths the sum of the whole is greater than the sum of the individual parts.

The paraplanner role most certainly brings greater productivity to financial planners and the cost of having this support is less than the cost of not having it

SW: In your view, how has the role of the paraplanner changed over the last 10 years?
JL: We are seeing an increase in the general number of paraplanners who are exceptionally qualified and skilled.

At the various paraplanning events I attend around the country, I’m always delighted to see more and more paraplanners demanding their planners use the best financial planning tools but there is still some way to go persuading business owners about

a) the role of paraplanners and
b) how they should do their job.

There are still some business owners who use paraplanners for part administrative/back office rather than for straightforward paraplanning. Often, they are not given the right tools for the job.

Scenario planning and cash flow forecasting are essential tools for paraplanning and client servicing.

Paraplanners are now essential for most financial planning businesses. There is an established role definition and a career path with qualifications just as there is for financial planners. The paraplanner role most certainly brings greater productivity to financial planners and the cost of having this support is less than the cost of not having it.

Our paraplanners typically work on everything the planner works on and each day can be different: in one week it can go from helping clients with SSAS property purchase to searching for shareholder protection required by two partners of a limited partnership. Some clients will require little time spent but for clients needing more complicated, tax-planning scenarios such as SSAS buying a property, takes many months.

The nature of paraplanning has changed remarkably over the past ten years as has the planners’ role, especially with the advent of RDR. The planner must maintain the client relationship while the paraplanner, increasingly qualified to the same level as the planners, must be given the tools to allow for professional planning and research. The right cashflow software is vital for client planning.

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