In common with many personal finance journalists, I did as Treasury minister Ed Balls and his spinmeisters wanted us to do and wrote a piece about CTFs for my newspaper.
It was only a few weeks later, after speaking to someone who is possibly even more positive about CTFs than Ed Balls, that the thought suddenly struck me – where do IFAs figure in all this?
I was speaking to David White, chief executive at Children’s Mutual, one of the industry’s biggest CTF providers and someone who goes about banging the drum very loudly on their behalf.
In the course of our conversation, White let slip that although about 15 per cent of Children’s Mutual’s business comes from the IFA channel, in the case of CTFs, that proportion is down to a mere 5 per cent.
It is entirely possible that IFAs who are happy to recommend this particular friendly society in relation to other products have a particular aversion to its CTFs. It could well be the case that IFAs have decided to direct all their clients’ cash into the welcoming arms of F&C, which also competes in the same market, or Liverpool Victoria or perhaps even Druids Friendly Society.
Somehow, I doubt it. The evidence suggests that, in the main, it is the big institutions like Halifax, Nationwide and Abbey that have been cleaning up.
Again, although anecdotal, evidence so far suggests the vouchers and top-up savings pouring in to these banks are coming directly off the street, as it were.
What seems to be happening is that existing clients of IFAs are not turning to their advisers for help in deciding where to put their money. On the face of it, this does not make sense. After all, here is a tax-free investment opportunity available to millions of parents.
It is being seeded by the Government, for an admittedly small amount, but equally important is the fact that up to 30 per cent of CTFs now receive additional contributions averaging about 30 a month, at least according to the Pep and Isa Managers’ Association.
Over the period in question, that kind of saving will probably deliver a lump sum worth around 9,000 to your average 18-year-old, assuming reasonable investment returns. There is always the possibility of persuading parents and grandparents to save more, boosting that amount further.
You would have thought that the opportunity for any decent IFA to recommend child trust funds as part of an overall financial plan for their clients would be irresistible.
What is one of the big problems that IFAs have when trying to convince a fortysomething parent of the need to prepare for retirement?
“Oh, I cannot afford to put money into my pension, I still have to pay for my kids to go through college.” And what other opportunities are there for advisers to help parents to save for their children’s education? CTFs, presumably.
Yet that does not seem to be happening. White tells me that the response of most IFAs is to claim their clients are not in the market for CTFs. They are so-called “greyhairs” and their kids are too old to qualify for a Government voucher.
If that is true, and ignoring the potential inheritance tax-mitigating effect of a grandparent contributing towards a grandchild’s CTF, that is frightening. It suggests that not only are IFAs becoming older and older but so are their clients – and few if any younger thirtysomethings are seeking independent advice.Such a suggestion seems so incredible that it must be discounted.
Personally, I have another theory and it is this. A CTF, like so many products, seems fairly small and insignificant. The voucher involved is a mere 250 in most cases. The amount saved each month is small, so far. The commission payable on a CTF investment is probably small, too. As such, there is very little mileage in “wasting” one’s time on this product.
The problem with this view, in case you had not noticed, is that it totally contradicts the notion of IFAs as holistic financial planners. A planner, in my book, will be looking at all the short and long-term scenarios that might affect clients and their families and working out strategies to deal with them.
But if the only thing you talk to a client about in relation to his or family is protection because it earns you big bucks, you are not a planner but a salesperson. As such, you are ignoring not only the long-term financial needs of the child but of the parents, too.
Moreover, if your clients come back to you in 10 or 15 years and say: “I was not advised to save for my children’s education and not only do I have to increase my mortgage to pay for them but my retirement planning is shot to pieces as a result,” what will you tell them?
I would not be surprised if failure to advise on CTFs becomes a regulatory issue in the future. If so, you read it here first, yet again.