Practising financial planner Tony Granger is always eager to reach the general public by presenting his ideas in simple language and his latest book, The Definitive Guide to Funding School and University Fees, is no different. Cherry Reynard finds out more
Tell me about the book...
This is one of a number of books that I have written targeted at the general public. It aims to put school and university fees planning in simple language. All of my books have been financial planning based. This one has a foreword by Nick Cann of the Institute of Financial Planning and former chief inspector of schools Chris Woodhead.
Why did you decide on this subject?
I had a number of clients, both high net worth and medium net worth, who wanted to provide for private education. It was a major financial problem with school fees coming in at around £15,000 per year. This is an after tax figure, so the real cost is nearer £25,000 for a 40% taxpayer. This is a big market for financial planners and it is very immediate - people need a solution there and then.
There are also lifestyle-planning issues. School fees can cost £500,000 after tax. That is money that is not going into a pension or not paying off the mortgage. Parents now have to pay for university as well. Tuition fees can be £3,000 a year, plus living costs of £10,000-£12,000. Parents may have another £120,000 to find once a child has left school. We came up with a long-term funding solution. This is a self-financing school fees plan, which gives tax-free school fees by using the equity in a client's home if they don't have the cash to invest. The plan pays the interest on the loan, the school fees and returns the original investment.
It is all about cashflow modelling and looking at what new things are happening. This book shows people how to structure these plans themselves and shows the main funding routes. We have recently been appointed by ISCis - the Independent Schools Council information services - as a preferred provider of school fees financial planning.
Can you explain a bit more about how the school fees solution works?
You either have your own cash or borrow and secure it on your home. The plan pays all your mortgage interest and the school fees. At the end of the term it repays the loan. You are buying into a basket of traded endowments. These have been around for 25-plus years and their performance hasn't been too bad. The point at which we buy in traded policies uses the actual projections of the life office from that time onwards.
The original quote from the life office when the policy was taken out may have been, say, 15% as a return. However, nowadays potential returns on purchased policies are usually 8%-9%. We deal mainly with the Bank of Scotland. The bank creates internally an overdraft facility in the plan. From this, the school fees and bank overdraft interest is paid. It is robust, each one of the plans is approved by the bank first.
We treat TEPs as a commodity. We don't care why Mr Smith is selling. We use similar plans for equity release. Here, the client is in control. This structure can be used as an equity release product. People are also using them for long-term care, which requires income at a higher level. Income is a challenge in this day and age - annuity rates are at a 40-year low and income returns elsewhere are depressed.
Do you find people are nervous of the word 'endowment'?
Yes they are. The lack of transparency in with-profits was the major problem. The financial community killed off any new with-profits endowments. There are three guarantees in a with-profits policy: Firstly, the bonus vesting in the policy is guaranteed; secondly, the basic sum assured if premiums are paid to maturity is guaranteed; and thirdly, if the life company goes bust, there is the Policyholders' Protection Act and there is also life insurance on each policy. It is a good time to buy them as there will be a supply problem in the future.
What else does the book explore?
We present a range of ideas. For example, what about the role of grandparents? An employer can help. There are a number of financial planning routes open. The book also looks at childcare. Your employer can give you up to £50 per week to non-specific childcare up to the age of 15. The book shows the internet sites and which schools offer bursaries and scholarships.
The book has been very important for generating leads. There has been no real product development in this area for many years, until the development of the self-financing school fees plan.
What is your background?
I have a legal and financial services background and am a certified financial planner. I do a lot of IHT planning and much of my work has been with the corporate market. This is largely restructuring professional partnerships. I will look at their pension schemes, build the employee benefits framework and do the implementation. These are usually accountancy and legal practices. I have specialised in helping others grow their businesses. I have always tried to find gaps in the financial planning market.
I formed the first annuity bureau, which was the first open market clearing house for pensions. I have always preferred to stay small as a business. I believe I am one of the few financial services text book authors who is also practising as an IFA
Is your practise run on fees or commission?
I do both. Fees are for advice. If you want me to implement a product transaction, there will be commission payable. Clients who only see you for an hour often forget that you spend 30 hours on research. A client can implement advice wherever he wants.
My belief is that many pure fee-based advisers can't afford to survive. They will need to exchange commission for fees. It is very expensive to run a financial planning business - the margins are very thin. I have sold two businesses and come back and set up again. I have looked at the most lucrative areas of the financial planning market with the most immediacy. It seems to me this is in the area of school and university fees planning, particularly for middle-income clients.
My aims are quite altruistic. I want to bring proper financial planning to the broader mass of the general public. Financial services capability is growing in schools and I would like to see greater financial services literacy among adults and children.
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From June 2019