All firms providing pensions and retirement advice or marketing should use some form of cashflow modelling to protect from mis-selling, it has been suggested.

As part of a white paper launched at the PFS Festival of Financial Planning today, 7 November 2017, Prestwood (a software provider for financial planners), has proposed that cashflow modelling should be implemented to eliminate the provision of unhelpful advice and mis-selling scams.

Prestwood founder Paul Etheridge said: “We contend that all firms providing any kind of retirement advice or marketing must use some form of cashflow modelling. This is a crucial step towards protecting consumers from mis-selling and giving clarity to them; reducing IFAs’ PI insurance; and restoring faith in our profession.”

Although the internationally accepted six steps of financial planning are embedded in top advisory firms, this must become more widely used in order to prevent “devastating episodes of mis-selling of financial products” and greater mistryst of financial services from occurring, Prestwood said.

PFS CEO Keith Richards commented: “Since the introduction of pension freedoms, cashflow modelling has increasingly become an essential planning tool whilst also helping to ensure better client engagement, understanding and confidence.”

Prestwood highlighted recent findings from the Financial Ombudsman Service’s annual review for the year 2016/17, that showed over half, 52 per cent of investment and pension complaints were about sales and advice. In addition, the uphold rate for the top-five most complained-about products included: self-invested personal pensions (64 per cent) and personal pensions (39 per cent).

While the FOS was unable to detail the processes used by firms with upheld complaints, Prestwood inferred that: “It is our expectation that none of the firms where complaints were upheld, used a lifetime cashflow model to determine the suitability of the advice.”

Prestwood director Julie Lord, said: “If advisers do not as a community improve the way they communicate these messages of risk and action to their clients, our profession will continue to be slated and called to account. More seriously, our ageing population will not be cared for by a government knee-deep in debt.”

The firm added that it has asked the FCA for its view on cashflow modelling for pension and investment advice. A response is yet to be received.

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