Almost FIVE MILLION children could cut their investment costs by two-thirds or get greater investment choice (if only their parents knew it)

24 February 2015
 

Comment from Jason Hollands, Managing Director at Tilney Bestinvest:

“Up to five million children born between 1 September 2002 and 3 January 2011 could potentially benefit from the new flexibility to transfer Child Trust Funds into Junior ISAs being introduced from the 6 April. However most parents and guardians are likely to be oblivious to this due a to a policy fudge that has seen a wholesale merger of CTFs into Junior ISAs eschewed in favour of allowing voluntary CTFs transfers into Junior ISAs which will require parents in the know to request the necessary paperwork. Lack of awareness and inertia could see millions of children endure lower returns as a result.

“Initially launched with great fanfare by Gordon Brown during his tenure as Chancellor and accompanied by the distribution of £250 vouchers from the State to all new born children, the Coalition put an end new CTF accounts being opened replacing it instead with an entirely voluntary scheme, the Junior ISA.

“CTFs have become a “zombie” product, with lack of competition and innovation between providers. According to data from HM Revenue & Customs, some 4.84 million CTF accounts representing almost 80% of all CTFs, are invested in Stakeholder Accounts. 1.75 million of these were opened by HMRC after parents had taken no action within 12-months of receiving this ‘free money’ for their offspring.

“Stakeholder CTF accounts have effectively been the default option and a key feature of these accounts is a requirement that their charges would be capped at 1.5% per annum. The charging cap will undoubtedly have left some parents with the impression that this mustrepresent value for money. Indeed many providers describe the benefits of their Stakeholder CTFs as being ‘low cost’.

“Yet most Stakeholder CTFs are invested in UK index-tracker funds and 1.5% is actually a very high level of fee for such investment strategies. To illustrate this, our Online Investment Service provides access to the Fidelity Index UK W fund, which tracks the UK stock market as defined by the FTSE All Share Index, for on-going charges of just 0.09%. When combined with our Junior ISA account fee of 0.4% per annum, that means total costs of 0.49%, over two-thirds lower than most Stakeholder CTF accounts which are invested in similar, index-tracking funds. As these children’s savings schemes are typically very long-term investments, which are only accessible from aged-18 that could make a surprisingly big difference in outcomes over time for what are, fundamentally, very similar investments.

“However, costs aside the fundamental weakness of the CTF market is principally the lack of investment choice available compared to the Junior ISA market. Our Junior ISA alone offers access to over 2,500 funds as well as investment trusts, Exchange Traded Funds and other UK listed shares.

“While the UK is without doubt a significant, international stock market, it is important to recognise that the UK accounts for around 10% of global equity markets by size. By focusing a child’s investments exclusively on UK-listed investments, you could be forgoing a lot of opportunities. Junior ISAs enable parents to access some of these either by selecting combinations of funds that give exposure to other regions of the world or choosing investments that take a global investment approach such as the Scottish Mortgage Investment Trust, which invests in high growth companies from China to the USA and has very low costs. Investors should be aware that the trust is geared and can be very volatile. Another option is the Artemis Strategic Assets fund which invests across a wide range of markets and asset classes. Both these trusts are high risk and complex.”

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Press contacts:

Roisin Hynes
0207 189 2403
07966 843 699
roisin.hynes@tilneybestinvest.co.uk

Matthew Gray
0207 189 2492
matthew.gray@tilneybestinvest.co.uk

Important information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.
Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets.

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

For further information, please visit: www.tilneybestinvest.co.uk

About Tilney

Tilney is a leading investment and financial planning firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.