The Chancellor's proposals for child trust funds will put a silver spoon – or at least a silver-plated one – in the mouth of every child born after September 1, 2002.
But for the financial services industry, it is less clear whether child trust funds represent a golden opportunity or a poisoned chalice.
On the upside, the Chancellor has created a sizeable new sector in the savings market. On the back of my trusty envelope, I calculate that the bonds are likely to be worth around £1bn by the end of the first year and up to £10bn by the time they start to mature in 16 years. That is a pot of money well worth going for.
On the downside, I see three big issues that make things difficult. First, it does not look as if there will be much to be made, least of all in the short term. At the time of writing, we do not know what the rules on charges will be. Many people seem to believe that the limit will be higher than 1 per cent but if it is not then it does not take a mathematical genius to figure out that the year one revenue from a stand-alone £250 investment is £2.50. Things get a bit better by year 18, when I calculate that the revenue could be as much as £7.
Second, the target market is problematically niche. Of course, niches can be a good thing from a marketing point of view because they can be reached precisely and cost-effectively with the rifle rather than the shotgun.
But this market consists of parents in the few months after a child is born. This is a situation in which most parents find themselves just under twice in a lifetime. Is it worth loading up the rifle to build long-term awareness and preference for your particular brand?
You have to recognise that all 150 players in the market will be firing their weapons more or less simultaneously by marketing their products to the parents of newborn children. When your shot is one in 150, you have to be feeling pretty lucky in order to believe that it will be the one that will find the target.
Third, and most head-scratchingly, the market will consist overwhelmingly of people who have minimal interest in financial services marketing communications and little, if any, financial literacy. So far, the experience of trying to promote Government-backed savings and investment ideas to such people has been almost wholly negative. Few organisations even bothered trying to promote stakeholder pensions to them but those which did failed pretty much completely to break through the barriers of ignorance, distrust and lack of enthusiasm.
Baby bonds have two advantages over stakeholder in that parents do not have to put in any of their own money and providers can put pictures of cute babies in their ads. But these considerations do not guarantee that people will pay any more attention to the marketing communications than they do in any other category.
All the evidence is that there are a couple of million adults in this country who are interested in savings and investment propositions and 38 million who are not. Generally, those who are interested are largely upmarket middle-aged and elderly men, who can safely be said not to represent the target market for baby bonds.
The marketing opportunities seem to me to look very different indeed to different kinds of potential baby bond providers with different kinds of customer relationship.
For big providers with lots of customer contact – most banks and arguably some high-street retailers – it is probably reasonably straightforward. They will make a splash in marketing and communications terms around the time the new bonds are launched in spring 2005, simply because that is what big providers do when they have a new story to tell.
But they will then rely largely on rifleshot direct marketing to target propositions within their customer bases using a variety of techniques including demographic profiling, analysis of expenditure patterns and branch staff being instructed to look out for female customers who are visibly in a delicate condition.
It is what everyone else should do that is hard to call. Assuming that a motley crew of life companies, fund managers, financial advisers, friendly societies and others decide to go for it, then it is interesting to speculate about what their campaigns will consist of, especially when they are up against competitors such as Tesco, which can spot the first appearance of Pampers on the Clubcard holder's till receipt.
One thing is for sure, no organisation is going to want a business model that calls for a lot of face-to-face selling or advising. As a face-to-face sell, a £250 baby bond is about as profitable for an adviser as a McDonald's Happy Meal and it is hard to imagine that there will be much renewal commission either.
For all but those few high-street players that can expect a large amount of walk-in trade, a critical success factor will be readiness, willingness and ability to play in the direct market. It will, of course, be possible to do this on a cunningly targeted basis.
For example, I am sure that our clients at Witan, the big international investment trust which presents its children's savings proposition under the CCHM-created sub-brand Jump, will continue to focus on the more aspirational and investment-literate young professional parents who reside in the Nappy Valleys of Battersea, Putney and Richmond. It may well be that niche players like this take advantage of the opportunity to provide some specialist product offerings rather than the somewhat hazy risk-controlled equity-based product which the Treasury says will be the default design.
Finding the right way in the direct market will be trickier for the mid-size players which have neither the depth of pockets nor the customer access of the big generalists nor the targeted propositions of the niche players. Among these mid-sized players, one is inclined to include the friendly societies.
One friendly society – the former Tunbridge Wells Equitable, now The Children's Mutual – is so excited about the potential of the children's savings market that it has rebranded to focus single-mindedly on it. As a specialist organisation, it is making progress in forging useful affinity relationships with potential routes to market. Of course, it offers a much wider range than the new bonds. There is talk that at least one other big friendly society, and potentially several, may follow in Twefs' footsteps.
I wish them well. But looking at the threat now posed by the banks, which have only dabbled in this market in the past, you cannot help fearing that unless friendly societies can form powerful strategic alliances, they may find themselves in the position of, say, small foxes which have equipped themselves with sheep's clothing just at the moment when a pack of 150 ravenous wolves is about to appear on the scene.
Finally, it would be wrong to prepare an initial marketing response to the launch of baby bonds without pausing to consider the most interesting of the Government's proposals, namely, that the bonds should provide both a means and a motive for parents to learn about the whole business of making and managing savings and investment decisions.
It is a sort of Trojan rocking horse strategy, in which the Government's gift comes with a hidden agenda. This is a clever idea and it is a pity to respond lukewarmly to it but one cannot help feeling that a combination of providers looking to cut every cost in sight, and consumers looking to do as little grappling as possible with tiresome and incomprehensible financial stuff, is likely to put paid to the idea, at least as far as the mass market is concerned.
There are still 18 months until the launch of baby bonds and it will take a while to form a balanced view of the marketing opportunity they represent. We may not even get to a balanced view until some while after the launch.
In the first few months, every baby born since the scheme's official start date on September 1, 2002 will be issued with his or her voucher, so the first year's market will be about three times the size of each subsequent year's.
This is again a reasonably cunning plan on the part of the Government to ensure that the industry makes a loud, lively and enthusiastic start but you cannot help thinking that providers which fail to achieve much market share in the first year's bonanza are unlikely to hang around to scrabble for a share of the much smaller market in each following year.
It all looks like a couple of other Government-led financial services initiatives of recent years. There is some good stuff there and it is hard to be against it but also hard to see how many players could possibly make any money out of it or achieve worthwhile market shares.
In a nutshell, there are some niche opportunities for a few specialist providers, including, I am pleased to say, our own client, Jump. Otherwise, it looks nicely set up for the banks and maybe a few major retailers to dominate without too much opposition. No change there, then.