Rory Percival on cash-flow planning: what does the FCA expect?

The FCA hasn’t commented explicitly on cash-flow planning to any great extent.  It has said in the past at conferences that it is a good practice way to address capacity for loss although I think cash-flow planning should be the standard way to address this key issue.  The FCA has also, effectively, mandated cash-flow planning from 1 October 2018 for DB transfer advice.

Although there has been little mention from the regulator, here are three areas I think it would be interested in if it visited a firm:


The FCA has rules requiring staff in firms to be competent to do the work they undertake.  This requirement will be reinforced with the Senior Managers and Certification Regimes next year.  Hence an FCA supervisor is likely to be interested in whether cash-flow planning tool users – typically advisers and paraplanners – are competent in this area.  Has your firm undertaken any training or provided guidance for users?  If not, then this is an area to address.


Assumptions used in cash-flow plans are critical.  Over a 40-year period, a difference of just 0.5% pa in an assumption like growth rate or inflation can make more than a 20% difference. An error in not treating tax correctly or not taking into account charges will completely wreck the figures and leave the firm open to a potential complaint.

Other than the forthcoming requirements for DB transfers, the FCA doesn’t prescribe assumptions but they should be sensible and evidence-based. It would be good practice to review these at a firm level on a quarterly basis. Tools often include default assumptions. In these situations, always check you are happy with the defaults and change them if you think this is appropriate.


Think about how you present the cash-flow planning tool outputs to clients.  The FCA have expressed concerns about seeing large cash-flow reports with multiple charts and asking ‘what is this really telling the client; is this clear?’

The outputs from cash-flow planning tools can often be quite extensive, detailed and also quite similar (i.e. a number of very similar looking charts). Do make sure that each chart is clearly explained so that the client can see how it differs from the last one. Explaining changes or spikes in the chart can also help.

In the suitability report, either summarise the charts and what they mean and cross-reference the cash-flow report or include the key charts in the body of the suitability report.  If doing this, don’t overload the client, perhaps just include the base plan, the chart showing the recommended solution and a key stress test chart.

In summary, there are good and poor ways of using cash-flow tools.  Make sure the users really understand how the tools work to get the best out of them.