Firms should not decide against launching Child Trust Funds as the market, which is worth a minimum of £175m per year, could prove to be a good long-term commercial opportunity, says Practiv.
The consultancy firm says CTFs will still be profitable with the 1.5% price cap on charges.
This is because even products will low charges, such as CTFs, can be turned into profitable products as long as the right processes are in place, Practiv says.
Firms using the right mix of offshore data entry, electronic data capture, internet and straight through processing could make great cost savings, it adds.
Martin Davies, principal consultant at Practiv, says: "Providers are sitting very much on the fence over CTFs because they are drawing negative parallels with other lower products such as stakeholder pensions.
"But it has already been demonstrated by companies such as Friends Provident, who have remodelled their business around electronic data exchange and straight through processing, that low cost for the consumer does not have to mean no profit or oppportunity for the provider.
While the "real underlying commercial opportunity" lies with the more financially secured families, Davies believes firms selling CTFs could build a relationship with parents, which could then lead to cross-selling opportunities.
He says: "Looking much longer term, the relationship with the child, if managed well, could lead to the capture of the next generation of consumers and their inherent financial needs. Therefore those companies entering the market at the launch of the scheme will undoubtedly have some competitive advantage and reap the rewards of customer acquisition in due course."IFAonline
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000
Two roles created