Tuesday, 21 December 2010

The Seven Stages of Money Maturity - George Kinder

Its been a little while since I have last posted but I really wanted to tell you about the latest book I have read. A colleague introduced me to The Seven Stages of Money Maturity a couple of months ago and I thought I would give it a try.

While I'm certain anyone could get a great deal from this book I feel it could be of most help to other financial advisers. George Kinder has many years experience in financial management and over time has developed a fantastic outlook on how best to help clients achieve - money maturity! Given the ever approaching RDR (retail distribution review) in January 2013 building a robust client proposition is or at least should be at the forefront of the minds of every financial adviser around the country.

This is no big sales pitch, just my comment on an interesting read. You can pick up the book from most major book stores - I got mine online. For those of you that get to read it please let me know what you think and if you have any other great books on financial advice then please let me know by way of comment.

I can't imagine there are many more as the topic is not exactly what you would call mainstream although it is refreshing to see a book focussed not on "how to make money from shares" and more, how to understand your relationship with money and how that knowledge and understanding can help you to build a far better financial future for yourself, or your clients.

Monday, 4 October 2010

Pensions 'cost 80p per £1 invested' | News

The Evening Standard today wrote the following article suggesting that HSBC charged almost 80p in every £1 invested on a pension over 40 years.

In my opinion this is another example of the media looking too narrowly at a subject and selecting the areas of interest that carry the most startling headlines.

While they do comment that HSBC pointed out the pension would be worth almost £400,000 at the end its the headline that grabs one's attention. Looking at pension fund charges retrospectively (once it's £400,000), of course the fees are much larger than when there is very little in the pension but those fees are as a consequence of the growth of the fund. If the fund had not grown as well the fees would have been much less.

I have not ran comparative quotes but as the fees we are looking at are done on a percentage lets look at some alternatives.

Assumptions - A fund of £375,000 accumulated over 40 years accumulated at a contribution rate of £200 per month accrues fees of £100,000... (As a note, £2,400 per annum (£200*12) over 40 years is actually £96,000 so I assume there was some sort of inflation proofing escalation added to the contribution).

If the contribution rate and percentage costs remain the same then if performance over that period was halved the total cost would also be halved which would mean the following:

Contributions over 40 years = £120,000 (assuming escalation at the same rate)

Total fund value = £187,500 (due to lower overall growth)

Total Fees = £50,000 (because the percentage charge is less on a smaller fund)

Based on this outcome it is far better to have a smaller and less well performing pension fund... Does that make sense??? NO

If performance had gone the other way, stratospheric, then guess what, the fees would have been even higher, possibly more than the contributions themselves... Shock horror

How you look at this comes down to your overall attitude, it's as crude as are you a glass half full / glass half empty type of person. If you focus purely on the cost of the pension you would be better off with worse investment return, which of course would make you unhappy. If you have paid higher fees as a result of much higher growth and an overall bigger fund then that is something I like to call - a nice problem to have.


Writing an article in a certain way obviously paints a certain picture and can often scare investors unnecessarily who on the whole do not have a broad enough understanding of the subject matter to understand the limitations of the article.

In the past it has often been suggested that financial advisers are more interested in earning commission than giving their clients good advice. Is it not also the case that news papers are most interested in selling more newspapers and therefore writing articles with sensational headlines is far better than writing a more measured and equally considered piece?

As with all these matters, speak to your adviser, that's what you're paying them for...

Sunday, 3 October 2010

University students could face more than £10,000 a year in fees

University tuition fees could well be on the rise.

Read this article from this weekend's Guardian...
Read the full article

Best to make sure you have a plan for the future...

Monday, 20 September 2010

Regular Saving for School Fees

I have previously looked at investing lump sums for school fees and how this can potentially save you a significant amount of money over the long term. Many parents do not have hundreds of thousands of pounds sitting around simply waiting to be spent on school fees.

More often than not one of the parent's wages will be directed entirely towards school fees, if not from outset then almost certainly by the time their children are reaching the end of senior school.

With school fees easily able to touch £250,000 per child it is easy enough to understand why a massive amount of a families disposable income is taking up just paying school fees.

You will always hear from me that the best approach is always to start saving as early as possible, getting into the habit of saving can never be a bad thing whether it is school fees related or not.

So if we are to assume that you have only one child and average school fees which include the cost of University (£250,000). If you were to start saving when your child was one year old then in order to cover the fees, assuming a long term growth rate of 5.2% then you would need just over £600 per month.

Please remember that growth rates are used purely as an example are in no way a projection or promise you could get back a return of more or less than the amount I have used. In order to achieve possible greater returns you have to be willing to accept potentially greater risk to the short term value of your investments. The two go hand in hand and while many people assume otherwise this can almost never be avoided.

Over the term of your child's education the total cost of investment is over £144,000. If you compare that to the lump sum investment required for the same level of fees it is some £20,000 more. While in the grander scheme of things this is relatively little, the more money you have to start with the better. Equally the more you can save at the beginning the better the compounding effects of growth can positively impact your investment balance.

Hopefully that gives you some idea of the level of commitment required to put your child through private education and University.

Thursday, 26 August 2010

School Fees Inflation 2000 - 2010 (2013 update)

Here are the average school fees figures for ISC schools including below the 2013 update.

*** Update for 2013 school fees Inflation - click here ***

*** Update for 2012 school fees Inflation - click here ***

*** Update for 2011 school fees Inflation - click here ***

Now proudly in association with  EDEN School Fees Planning

Parents more often than not underestimate the likely total cost of school fees, for the simple reason that they take little to no account of school fees inflation. School fees are usually the largest expense a family has yet unlike their mortgage which mainly benefits from inflation, as the years pass by the cost of school fees goes up A LOT.

If your child was born in 2000 and you had the forethought to look at the likely cost of school fees for 7 years of senior school (without accounting for inflation) the probable figure you would have come up with is around £35,000 - £40,000.

7 years of school fees starting from next September in todays terms would cost closer to £80,000 and if we inflate them forward from today at 6% they are more likely to cost £95,000. With other possible variables, music lessons, foreign trips etc that could be 3 times what you had expected when your child was newborn.

Nobody knows what inflation is going to be long term, over the last year it has been much lower than the average of the last 10 years. Of course we are in the throws of a recession which has had a large impact on schools' ability to increase fees at the usual rate but it is my belief that in time they will return to somewhere around 6%. There is also a chance that a few years from now fee inflation will be even higher because school are making up for ground lost during the current economic period.

I imagine development of new facilities is on hold at present but of course that cannot be a permanent situation so the new science wing will have to be paid from somehow and that usually means higher fees inflation...

Tuesday, 27 July 2010

Lump sum saving for School Fees

There is no denying that private school fees are expensive so having a strategy of how reduce the cost is for most people, quite important.

There are many ways to tackle the school fees burden which I intend to look at over time however below is how you would use a lump sum investment to help pay school fees.

What you read on this blog is not tailored or specific financial advice, rather broad brush ideas that if you want you can take further with a financial adviser.

Lets say you have a 1 year old child whom with over 20 years of education will have school and University fees of £250,000. This is a significant sum of money, a shade over £1,000 per month, every month until they finish University.

Many parents start to consider private education after receiving an inheritance. The difficulty is in knowing whether their inheritance will be adequate. If the money runs out they may not be in a position to carry on funding education from their income.

There are a number of factors to consider, firstly assumptions on the increase in school fees. School fees inflation is brutal, 10 years from now the fees may well be double what they are today.

What is your appetite and tolerance to investment risk. Exposure to either too little risk or too much risk and you may end up with less than you need for your school fees. So it is vital that you understand what investment return you would need in order to achieve your goal.

The smaller the lump sum you have to invest relative to your expected school fees, the higher return you need to meet the expected liability.

You will be in a better position to understand how close you are to achieving your goal by understanding the level of growth you need from your investments.

Given the 20 year time horizon above, a lump sum of approximately 50% to 65% is usually close the what you would need at the start, to cover school fees. By lump sum I mean having cash available of between £125,000 and £162,500.

Growth and income from the investment help to offset the cost of school fees. As the fees increase in the latter years of education the amount you have built up in the early years can cover the extra you need.

In this example the school fees including university total £250,000 and an initial investment of £125,000 covers the cost of all those fees.

Please remember that these figures are illustrative only. Were you to invest money for school fees you will get back more or less than this amount. General investment returns are not guaranteed.

While this is a simple way to demonstrate how you would save possibly 50% of the cost of your school fees many people do not have the luxury of a lump sum and so plan to pay their school fees from income. (regular saving for school fees

It may be that you have a smaller lump sum which you could use for school fees in addition to regular saving. These are just basic options, many more are available.

It is very important to consider every aspect of your circumstances and remember that although  you cannot magic money from thin air through using the tax system, investments and possibly other assets you own you can reduce the impact the cost of private education has on your lifestyle.

Monday, 12 July 2010

The Clue is in the Name

School Fees Planning says it all really. If you are thinking of sending your children to private school it is NEVER too soon to start planning for the school fees.

So often get calls from parents that have tried to manage themselves without any sort of planning. For those that don't know, school fees start off relatively cheap but increase significantly once your children get to senior school, a 70% increase is not uncommon.

Planning ahead can save you one hell of a headache and ultimately go some way to avoid being faced with the decision of maybe having to remove your children from private school.

I am not saying that school fees are a walk in the park, far from it however with some careful forward planning, some discipline, and a reasonable level of disposable income there is no reason why far more parents could not consider private school for their children.

There are plenty of factors effecting the cost of private education; the school, the number of children you have, their academic, music or athletic ability, where in the country you live and the number of years you would like for them to attend private school.

I will talk later about these various elements but as a very very rough guide I would suggest that if you want your little ones to go all the way through from Nursery / Reception, and to include the cost of University then something fairly close to £1,250 per month per child will cover it (based on assumed rate of school fees inflation and University costs).

That said, if you were to start when each child was born a budget much closer to £1,000 could be achievable. The circumstances of each family is different therefore giving rise to the need for formal school fees planning.

The main message is, start early and have a plan, get committed and stay focussed; a good education for your children is well worth the cost so it is worth spending some time planning your finances for the next 10 / 15 / 20 years...

Monday, 28 June 2010

Welcome to School Fees Adviser

As you may have already guessed this site is dedicated to planning for private school fees.

Many thousands of parents and grandparents pay private school fees year in year simply by waiting for the bill to hit the doormat. There are often many other ways to pay school fees which can be much more tax efficient.

As the average total school fee bill runs into hundreds of thousands of pounds it is not something which for many can be simply ignored.
The average private school parent will pay more in school fees than they will on their mortgage.

Without planning it can sometimes become a little too much leading to the worst situation, having to bring your children out of private school.

I work for SFIA, the largest school fees specialist IFA firm in the country.

I hope you enjoy this blog and more importantly, I hope you find it useful.