An advice firm has unveiled the latest version of its bespoke cashflow model, which it says uses "Monte Carlo statistical simulations" to illustrate how variations can impact on a client's future well being.
Epoch Wealth Management says its in-house Epoch Foresight tool - which can be seen in a video below - manages uncertainty for clients - the culmination of five years of work.
Monte Carlo methods are used to model phenomena with significant uncertainty in inputs, such as the calculation of risk in business.
James Smith, partner at Epoch says: "Many clients have a clear plan for death, often going to endless lengths to achieve domestic balance; using attorneys, trusts, wills and so forth.
"Surprisingly, clients rarely plan for life and how to get the most out of it. Those that do either lack appropriate 'feedback' mechanismsto help gauge success, or use inflexible cashflow products which fail to fully capture their financial affairs and intentions."
Epoch's cashflow model allows the firm to plot and review a range of inflows and outflows, and to examine the resulting interplay between factors such as tax, inflation and investment returns.
"By evaluating the viability of a client's goals through changing headwinds, opportunities and priorities over time, we are able to strip out the noise and make some sense of uncertainty for clients," says Smith.
"A major shortcoming of many projection tools is the fact that returns are not linear in real life. Epoch has been able to incorporate Monte Carlo statistical simulations to illustrate how magnitude of variations can impact on a client's future well being and we can demonstrate this in pounds and pence."
Epoch's model factors in uncertainty in areas of financial planning such as:
- The identification and quantification of a client's real, primary objectives.
- The attainment of a true perspective on a client's current position
- Demonstrating the extent to which short and long range financial aims can be achieved.
- Providing interactivity to test ‘what if' and 'catastrophe' scenarios.
- Assessing the full impact of decisions ranging from early retirement, to downsizing a property, or selling a business.
- How current spending patterns are inextricably linked to long term financial security.
- Demonstrating, on an ongoing basis, how unexpected changes will impact on the client's financial future.
- The integration of tax and financial planning, ensuring that assets, liabilities and income are structured optimally and distributed efficiently.
- Assisting lawyers in divorce or personal injury awards where traditional methods are too generic or templated and don't reflect the full extent of the emerging financial position.
- Risk and capacity for loss assessment.
The FSA Do Not Regulate Cashflow Modelling
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