What You Need to Know
- With the growth of the gig workforce, financial planning is essential to optimize efforts and create added flexibility.
- Advisors must help their clients by building cash flow statements and balance sheets, updating them yearly, and providing sound guidance.
- Modern cash flow planning technologies explore planning scenarios and show the direct impact of the advice, resulting in more productive exchanges.
The pandemic has been a catalyst for change. This global, shared experience has accelerated technological advances and cultural shifts that underpin work and engagement practices. As a result, consumers are reassessing their life and money priorities at a time when there is more flexibility than ever to decide when, where and how you earn money. Plans are changing, and financial advice needs to adapt to support these changes.
Generic retirement planning is no longer the answer. It’s time for financial advisors to embrace cash flow-based planning and advice. Doing so can better serve a more diverse, digitally engaged consumer, organize an expanding set of inputs, deliver value above and beyond investment returns, and provide control and flexibility at each stage of the wealth cycle. Those who will continue business as usual will miss out as key shifts continue.
COVID has left many questioning the idea of careerism, triggering an uptick in passive income generation and the gig economy. This trend was already taking flight. Millennials and Generation Zers led the way before the pandemic, but it has been amplified across generations since.
Estimates from Gallup show that the U.S. gig workforce could be made up of 50 million to 60 million people. This is important for financial advisors because clients are increasingly taking on diverse and volatile sources of income. Many are unadvised or don’t have exposure to the capital markets or traditional employer-based savings plans. Financial planning is essential to optimize efforts and to create added freedom and flexibility.
Given this shift in mentality around work, cash flow-based planning has emerged as a strong solution. Gone are the days when cash flow management was a task that applied only to businesses. Consumers often have a personal-CEO mentality today. They seek the benefits of understanding cash flow in their personal lives and households. They even see it as a way to future-proof against uncertainty and instability.
Yet many financial advisors are slow to adapt, to see clients for who they are and how they want to operate. There is an embedded view that to plan for the future, an investor needs to have clear financial goals. In fact, asking about these goals is often the first step of a financial advisory journey. Advisors often expect answers such as retiring early, paying off debt, supporting kids through college or building an emergency fund.
These types of cookie-cutter financial goals, however, are suitable only for a certain segment of the workforce that operates mostly in a traditional, 9-to-5 environment. This is what many workers are leaving behind or potentially never entering.
It’s difficult, and in some cases, meaningless, for the modern prospect or client to predict their lives in a decade or two down the line and to set financial goals accordingly. They would rather follow general behaviors that will allow them to pursue their passions and focus on generating funds to help facilitate that journey.