Child Trust Funds are not even available to buy yet and they are already being targeted as a possible mis-selling opportunity. The Chartered Insurance Institute has issued a warning to the Government about the possibility of the new savings schemes being sold without advice. The maximum charge a provider can make for a Child Trust Fund is 1.5% per year. Many providers believe this is not enough for them to pay commission to cover the cost of advice.
Our View
We would agree with the main concern of the CII that offering anything other than cash based savings to the public requires at least some degree of advice. Many Child Trust Funds will offer stocks and shares based funds. If people do not understand what they are buying, believing they are putting money into a cash savings account, the fact that they could lose money will not be well received.
We also do not believe that commission should have to be paid in order for people to receive advice. A small fee to cover the time explaining how the CTF works could be paid separately by the Government or client. The Government obviously believe advice is unnecessary – let’s just wait and see.