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Fund firms and life offices fear baby bond ban

The Treasury is playing down fears that fund firms and life offices could be barred from offering child trust funds, saying a decision has yet to be taken over providers.

In his pre-Budget statement last week, Chancellor Gordon Brown confirmed the Treasury would press ahead with the funds, branded as baby bonds by providers, but indicated that banks, building societies and friendly societies would be the only companies able to offer them.

The Investment Management Association reacted by writing to the Chancellor, asking for confirmation that its members would be part of the consultation process as mutual funds should have a “significant role to play” in the bonds.

The ABI contacted the Treasury, asking if its members would be excluded. The ABI says it is satisfied its members will not be excluded while the IMA is awaiting a response to its letter.

But the Treasury says it is premature to make firm decisions and it is not ruling out any type of potential provider.

Fund firms say it would make no sense to exclude them. IFA Hargreaves Lansdown says it would be “completely crazy” for the Government to ignore the bonds&#39 natural providers.

Head of research Mark Dampier says: “What are the banks going to offer? Their investment performance has been terrible. If they outsource the management, it would add another level of charges. It would be completely crazy to ignore fund managers.”

A Treasury spokesman says: “We have decided to go for the open market option. We are not ruling out fund managers, it would be very premature to say that.”

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