CHILDREN eligible for Child Trust Fund (CTF) vouchers have 18 years to master the art of wise money management before they get their hands on their windfall. Their parents, on the other hand, have less than two months to make good financial decisions on behalf of their offspring with the Chancellor’s giveaways.
As the first two million vouchers for £250 or more start to arrive, more details are emerging about the investment options. Those tempted to brave the stock market can take heart that, while the choice is not broad, some of the finest fund managers are involved behind the scenes with a few CTF providers.
The options may appear confusing, but a network of partnerships means that the rising number of distributors — now 50 — are all linked to one of 29 providers. As a result, many CTF offerings are the same item, but in a variety of packaging.
As with a certain royal marriage, there are usually three parties in a CTF union: the distributor, the provider and the fund manager.
Think of a Russian doll. On the outside is the distributor, usually a high street presence, whose job it is to catch your eye. Remove this layer and you uncover the provider, who takes care of the administration. A provider may also act as a distributor on its own behalf. It is the third “doll” that should concern you most. This is the fund manager, whose investment decisions will determine the success of your CTF.
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So the most important question to ask when you are choosing a CTF account is: “Who is managing my child’s money?” Most CTF providers take the Government’s line that, over 18 years, a stock market investment should be more profitable than cash savings. As we reported last week, only one bank and seven building societies offer cash accounts.
All CTF providers have to offer a stakeholder option, which comes with strict rules. Charges are capped at 1.5 per cent and the money must be moved into lower-risk funds in the final five years. Most stakeholder accounts are FTSE 100 or all-share trackers. Abbey offers a “global tracker”.
A charge of 1.5 per cent is high for a tracker, but providers justify this by citing the costs involved in managing small amounts of money. F&C, the only investment trust company to offer a CTF, has the lowest charges for a tracker.
Non-stakeholder accounts can be cash or share-based. Charges are not capped, investment management is unrestricted and minimum monthly contributions can apply.
The most prolific player in the market is The Children’s Mutual, a friendly society. It offers accounts through 25 distributors including Boots, Mothercare, Lloyds TSB and at least 14 building societies.
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Its non-stakeholder product has impressed financial advisers. Anna Bowes, of Chase de Vere Financial Solutions, the independent financial adviser, says: “If you are expecting to invest the full £1,200 each year, this could become a large fund. It is probably wise to spread the investment among a number of funds and managers, and the Children’s Mutual offers the largest choice so far under one umbrella.” Ms Bowes also recommends F&C for diversification.
The Children’s Mutual has recruited City heavyweights Gartmore, Insight, UBS and Invesco Perpetual as fund managers and offers a spread of 12 funds, including Invesco’s Income fund, run by the highly regarded Neil Woodford. The minimum monthly investment is £50. Annual management charges range from
1.3 per cent to 1.9 per cent.
Family Investments is another small name with a big role in the market, distributing through the Post Office, Sainsbury’s Bank, Barclays, Coventry Building Society and Bounty, an organisation for new parents. New Star, a leading fund manager, will manage the investments in all cases except Barclays.
Ms Bowes also likes HSBC’s stakeholder, which invests in its “excellent” UK Growth & Income fund. More choices are expected to appear on the market before April 6.
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LINKS
Chase de Vere Financial Solutions: 0845 6000900, www.chasedevere.co.uk; Official CTF site: www.childtrustfund.gov.uk.