Canadian Capitalist

51 responses so far ↓

• 1 Quentin D'Souza // Mar 26, 2007 at 12:55 am

  RBC has Mutual Fund mix that is geared to certain graduation periods for RESPs. Where by the mutual fund has different risk periods depending on maturity.

  See RBC Target 2010, 2015, 2020 Education Fund

• 2 Mike // Mar 26, 2007 at 3:00 pm

  I think these plans might be useful for people who have absolutely no financial discipline at all.

• 3 Canadian Capitalist // Mar 26, 2007 at 3:33 pm

  Mike: I would be a bit more enthusiastic about group plans if I am able to understand how they work. After reading the prospectus, a couple of times, I have to say that they are very complicated. It is also not easy to ballpark how much total returns will be in the future: the rate of return published is before fees and expenses and is meaningless IMO. One thing I can say for sure, if I don’t understand something, I simply avoid it.

• 4 Mike // Mar 26, 2007 at 4:08 pm

  Good point. From what I could see from the prospectus of CST it looks like the costs are about 5% (ie 5% MER) so that’s a pretty big hit from their gross returns.

  And you’re right - better off to avoid them. For some folks the best resp plan might be to pay off the mortgage before junior goes off to college which will free up enough money to pay for the schooling.

• 5 Jon D. // Mar 27, 2007 at 11:24 am

  My daughter was born last September and all throughout the natal ward were CST posters, even a “Free” photo-postcard sponsored by CST.

  I have my daughter’s SIN so I’m just weighing my options, but I will be definitely taking advantage of the CSG. When else does th Federal Government give away money?! (okay, bad question)

• 6 Big Cajun Man // Mar 27, 2007 at 1:30 pm

  So how does the RESP change now, that the yearly grant is $500? Do I have to put more money in to get it? –C8j

• 7 Canadian Capitalist // Mar 27, 2007 at 2:10 pm

  Big Cajun: Yes. You have to contribute $2,500 to get the $500 grant. Remember though the maximum grant stays at $7,200.

• 8 Traciatim // Mar 28, 2007 at 4:14 pm

  I actually do have a CST plan for my daughter. I’ve been contributing for just around 5 years now at $105 a month. Our first contribution was April 2002. That’s put us at about 59 months of contributing. If you do the math that makes my contributions about 6195, plus the 20% that the government should be topping off would be 1239. That means my 7434 has been working over 5 years to net me a whopping $7149.51.

  Yes, that’s not a typo and you read it correctly. I just logged in to my account to get the ‘Current Balance as of 28-MAR-2007′.

  My only advice for people shopping for an RESP. If approached by a sales rep for a group RESP provider (especially CST). RUN. Run for the hills as fast as you can. You would be far better off stuffing bills in tin cans and distributing them in non-random patterns in your back yard underground.

  Oh, I’m not bitter.

• 9 Traciatim // Mar 28, 2007 at 4:16 pm

  P.S. Jon . . . I wonder if my 280 bucks paid for that photo-postcard you saw

• 10 Edward // Jun 3, 2007 at 11:14 pm

  Please do not sign anything. RUN.

  If you did sign they usually give you a grace period.
  CANCEL TODAY, while you still can.

  If you are stuck. I’m stuck too.
  Write to me at edward@evpnet.com

  I cannot understand why is the government doing nothing to stop this. There should be a class action suit.

• 11 nita // Jun 6, 2007 at 10:52 pm

  Hi My name is Nitu and i have been in the financial industry for over 10 yrs. Being a financial advisor with CIBC , investors group and few other dealears. I have also had my license sponsered by pooled RESP dealers. Being on both sides and being able to offer my clients an option of self directed or pooled (group RESP) leaves me unbiased.

  I think both products are good depending on the risk tolerance and so forth of the client. I belive many financial advisors and consultants do not understand the group RESPs and are too quick to Judge them . Here are the fact of positives and negatives of pooled RESPs;

  Negatives–

  1. They are less flexiale than self directed ones as you would have to stick to choosen payment schedule.
  2. Fees are front end therefore you would not earn interest on part, not all of your principal for the first two years. This is why some of you are seeing a lower current balance than you have contributed.

  Positives—

  1. Fees are actually lower than most mutual funds MER’s. Depending on the company you go with they range anywhere from 0.5% to 1%. There are also membership fees depending on the number of units you purchased , usually 100/per unit (average units are about 11) Compare this with your average mutual fund fee of 2.0% over the life of the plan assuming 18yrs (started when a child was a newborn) these fees are actually nominal . (I would have to explain this in detail on paper but the math has been done). Good Mutual funds (non bank) also have fees similar to the pooled membership fees they are called frond end or back end. If a mutual fund is sold with front end fees than up to 2-5% can be charged or deducted from your principal never to be returned, if they are sold with back end fees ( which they normally are ) then there is a redemption fee sechdule usually from 6% to 0% withing the first 7 years deducted from what you withdraw. Pooled RESP fees(MER;s) are not only tnominal but the membership fees of the group plans are returned if the child goes to school, therfore only charged if the nominee does not attend any post secondary education. With the mutual funds weather the nominee goes to school or not or wether the fund performance is positive or negative the MER’s are there yearly.

  2. You are able to get a decend rate of return average of approximately 7% -11%over 10 yrs without having to risk your principal, if the child goes to school. If the nominee does not attend post secondary education then the returns would be similar to that of low risk bond funds. In my opinion its worth to try to get high returns without risking your principal in case the nominee does further their education, and have a lower return if the child does not attend post secondary insitution. Also remember where ever your principal is invested that is where the grants will be invested. So if a mutual funds performance is negative the grants will also be negative.

  3. over 10 yrs ago if the nominee did not further their education the pooled plans only returned the principal and the members lost the interest. This was changed many years ago, now all group plan give interest as well.

  4. The group plans were also very rigid , long ago. Now if the members are not able to keep their commitment of what they started out with then the plan could be suspended for 3yrs and then has to be restarted, however if the client wants to cancel altogether and take out their money they will lose the membership fees as with the back end fees of the mutual fund for the first 6 yrs. Some pooled RESP’s can be locked up after approximately 8 yrs so the clints do not have to continue at all, withoug loosing anything.

  Lastley i would say the trick is to find the right company and representative who can explain the both options with full knowledge. Usually the group plan sales people have limited knowelege of mutual funds and the Financial adivsors have even less knowledge of the pooled resp’s usually they are misinformed and stuck on the old version of group RESP’s.

  At the end of the day i belive if the client is willing to take a risk and their financial situation alows them to take a risk then i would recomend mutual funds however if the cleint is low to medium risk then why put them in a low risk mutual fund with higher fees and no gurantees when the group RESP’s are a great alternative with potential heigher returns and lower fees.

  As far the people who are seeing less than their principal amount in their group RESP statements, thats because the membership fees have been deducted up front as it would be in a front end mutual fund. Do not worry, i have seem 1000’s of families in group Resp’s getting a very good return at muturity. In time you will see a much bigger balance, just give it time to earn that.

  By the way i repersent Heritage Education Funds Inc which is the easiest to understand and the lowest fees group RESP. I myself could have invested my son’s RESP into mutual funds that i was selling or Heritage and i choose heritage.

  By the way if you read a full prospectus of any mutual fund, it is also confusing as is any prospectus. They are that way because they have to give full disclosure.

  If any of you want to have the choice of offering your clients the mutual funds and the group resps and need more information regarding this or clarifications , let me know

• 12 Canadian Capitalist // Jun 7, 2007 at 8:03 am

  Nitu: You are comparing pooled RESP plans with the worst mutual funds out there in terms of fees. I won’t call the membership fees nominal when it amounts to about 11% of the total investment.

  I don’t see how future returns in pooled RESPs will be in the 7%-11% range. Bonds are today yielding 4.5%, so how are pooled RESPs going to manage 7% in the future?

  My main point is that I can get at least the same return that a pooled RESP provides by investing in a self-directed RESP in low-cost funds. I can also tailor the risk based on the age of the child. It makes no sense to me that a newborn’s college savings should be entirely invested in bonds.

• 13 nita // Jun 7, 2007 at 10:35 am

  Canadian Capitalist: I am actually comparing Mutual funds in general with pooled RESP’s and typically (not always)the funds with low MER’s are underperformers.

  I have said the fees are nominal compared to that of mutual funds, not in general. I am really interested to know how you have calculated it to 11%. If this is the case then the mutual fund fees would be alot heigher than 11%.

  On an annual contribution of $2,000 a mutual fund with the MER of 1.92% would amount to $12, 390 over 18yrs , compare this to the pooled RESP where it would amount up to $7,629, if the nominee did not futher his education and only would be $3,903.00 if the nominee attended a 4 yr program. I would say that is nominal compared to a good performing fund.

  True today the bonds have low yields but as for the future we don’t know they could be high as they were in the past. Just as in a mutual fund, you can only look at the historical data and i think a 10 yr return is a good time frame to look at.

  Lastly i am not saying pooled RESP’s are for eveyone and a good advisor would not say a mutual fund is for everyone. It’s not about how the advisor feels about the investment. At the end of the day we have to do what may be best for the client based on their risk tolerance and financial circumstances (KYC). For some, pooled RESPs may make sense and for some they may not. All i am saying is that they are an alternative or another option if you will, and they are not a bad option if you fully understand them. As you have said that a newborns savings should not ENTIRELY be invested in bonds, this could be an alternative for partiall savings for diversification or fully if the client is a low risk client. Wether it make sense to you or not a low risk client should not be invested in equities. Besides a great advantage to pooled RESP’s is the possible gains from other members who forfitt their fees and yet the worst case scenario is a return similar to a bond fund without having to manage the risk.

  As i said i offer my advice as pooled RESP’s being an alternative for some not all, as are mutual funds.

• 14 Canadian Capitalist // Jun 7, 2007 at 11:24 am

  Nita: It is incorrect to say that low-cost funds are under performers. Do you have any studies to back up your claim? I can show you any number of studies that show the importance of low MERs. In any case, I am invested in index funds which will track the index less the MER, which is lower than 0.5%.

  Take the CST. The annual contribution for a newborn per unit is $105. The membership fee is $200. You are agreeing to contribute this amount for 18 years. So, the load is 10.6%. Yes, membership fees are refunded in nominal, not real terms, but only if the child enrolls in a 4 year program.

  If future bond yields are higher it is bad news for someone investing in bonds today. It means their principal is being inflated away faster than they are being compensated for it in terms of interest payments. In any case, total bond returns have a high correlation with current yield. So, it is reasonable to assume that bonds will have total future returns in the 4.5% range.

  BTW, I am not suggesting that the entirely invested in equities, but a diversified portfolio of stocks and bonds. I can invest in bonds myself, why would I want to invest in bonds through pooled RESPs?

  The only attraction of a pooled RESP is the possibility that attrition will boost returns as long as you are not the one dropping out. I am not convinced that the boost from attrition will make up for all the negatives I have pointed out.

  Here’s the math on what you can optimistically expect in future from pooled RESPs: portfolio growth = 4%, attrition = 0.5%, discretionary top ups = 1.5%. Total = 6%. If you are pessimistic, returns will be in the 4.5% range. That’s before accounting for the membership fees. Is it any wonder I prefer the self-directed route?

• 15 slick // Jun 7, 2007 at 11:31 pm

  I have a family plan for the 4 kids, and have tossed it all into a Td waterhouse trading account. once you are over $25,000, there are no annual admin fees, only trade commissions.
  I have it loaded up with income trusts.
  We are now in the process of trying to make a withdrawal, as the oldest is planning on college this year. I had to educate my accountant as to my understanding of the way the withdrawal is removed, and taxed.
  I was concerned that our contribution was going to be exposed to tax a second time upon withdrawal, but this is not the case. Only the Gov’t grant, and the income is taxed in the childs hands. I am planning on waiving the withdrawal part that is our contribution, so that the plan keeps returning an income for the other children.
  We’ll see how that worls out.
  Hope this helps
  slick

• 16 Dave pattee // Jul 13, 2007 at 10:14 am

  Your website is why the vast majority of people believe very little of what they see on the web.

• 17 Canadian Capitalist // Jul 13, 2007 at 11:03 am

  Dave: What’s your point? You are welcome to disagree with my opinions or post your point of view. There is no need to be disagreeable.

• 18 Oliver // Jul 16, 2007 at 3:28 pm

  I did sign up with Children’s Education Fund Inc. Canada. What a nightmare. I cancelled with them after 15 months. The CEFI personal was nothing but bad advice, especially the local Rep. from CEFI. Any RBC branch can handle your money better. Don’t use CEFI run and look for someone better. If you like to share any negative information about CEFI, go to my forum.

  http://cefi.aceboard.com/259399-2434-266-0-lost-quite-some-money.htm

  Good luck!

• 19 Jennifer // Nov 14, 2007 at 5:44 pm

  I’d just like to ask why does everyone think that what they do for their children, or whom they work for (banks, advisors,resp specialist) think that they are right and everyone else is wrong?

  I have a bank investment (TD) and a group plan (Heritage) I opened with Heritage as the investments I had with the TD didn’t grow at all. Yes, there is an upfront enrollment fee for the group plans, but it is very nominal compared to the MER’s that banks and others charge, on a compounding total including the CESG. There are good and bad in both, however is safe secure flexibilty is what you are looking for then in MY OPINION group plans are the best. There are 5 group plans out there… you have only talked about one, what about the other 4? I can tell you that with Heritage, they pay in the number of years your child goes to school. Who knows when you have a newborn what or where they will attend at the age of 18? At least I know if my daughter goes to college or university she is covered. Some don’t opporate this way, but check all your facts before badmouthing ALL group plans.

  Who say’s that banks and or investors are any better? They make TONS of money off their fees, but don’t share all of those details with the clients.. so who’s bs’ing who?

• 20 Traciatim // Nov 14, 2007 at 10:54 pm

  Jennifer, I will have to lump Heritage in with my assessment of CST above. It’s garbage.

  Lets looks at the fee structure of heritage vs an RESP through TD mutual funds (E-Series).

  TD Mutual Funds:
  CDN Index - 0.31%
  US Index - 0.33%
  Europe Index - 0.48%
  International Index - 0.48%
  CDN Bond Index - 0.48%

  Fees for Heritage:
  $100.00 per unit
  $10/year for monthly contributions
  0.055% Management Fee (Up to 0.20%)
  0.50% Administration Fee

  Now, I’m not sure how each unit works in Heritage but for my own in CST it works as every $10.00 in contribution per month is one unit, so for my $105 for my daughter, it’s 10.5 ‘units’. I’ll use that for my example. I assume equities are making 7.5% and Bonds are making 6%. Heritage will be equal to bonds. Doing an even $100 monthly contribution to make things easy.

  Year 1, we made $1200 in contributions. $240 came from the 20% CESG for a total of $1440.

  TD:
  1200 split in to 5 fund equally = 288 per fund. That puts $288 in bonds (6%) and $1152 in equities.
  288 * 1.06 = 305.28
  1152 * 1.075 = 1238.40
  Now take off the MER’s.
  Bonds: 305.28 * 0.0048 = $1.47
  CDN Index: 309.60 * 0.0031 = $0.96
  US Index: 309.60 * 0.0033 = $1.02
  Europe Index: 309.60 * 0.0048 = $1.49
  International Index: 30.60 * 0.0048 = $1.49
  Total of Fees Paid: $6.43
  Total Invested: $1200
  Money Left for child: $1537.25

  Heritage:
  $1200 Invested, $240 from CESG.
  $1000 deducted in enrollment Fee
  $440 invested making 6% = 446.40
  Subtract the $10.00 Fee for making payments: $436.40
  Take off the 0.5% Admin Fee of $2.18: $434.22
  Take off the $0.055% Manage Fee of $0.23: $433.99
  Total Fees Paid: $1012.41
  Money Left for Child: $433.99 (+1000 of fee reimbursement that doesn’t get to compound)

  I can see your point on how the bank is making HUGE AMOUNTS off the fees. I’ll do year two for a full contribution year, just to be a little more fair.

  Year 2, $1200 in and $240 in CESG for $1440 of new cash.
  TD:
  $288 in each of the funds
  Bonds: Had $303.81, now 591.81. Add the 6% and I end up with $627.32
  CDN Index: $308.64, Now 596.64. Add 7.5% for $641.39
  US Index: $308.58, Now 596.58. Add 7.5% for $641.32
  Europe Index: 308.11, Now 596.11. Add 7.5% for $640.82
  International Index: 308.11, Now 596.11. Add 7.5% for $640.82
  Bonds Fee: $3.01
  CDN Fee: $1.99
  US Fee: $2.12
  Europe Fee: $3.08
  International Fee: $3.08
  Total Fees: $13.28
  Total Invested: $2400
  Money Left for Child: $3178.39

  Heritage:
  Had $433.99 + $1440 = $1873.99
  Add the 6% interest of $112.44: 1986.43.
  $10.00 payment fee: $1976.43
  0.5% Admin of $9.88: $1966.55
  0.055% Manage Fee of $1.08: $1965.47
  Total Fees: $20.96
  Total Invested: $2400
  oney Left for Child: $1965.47 (+1000 of fee reimbursement that doesn’t get to compound)

  I could keep going all night, but I think you see my point by now. In no way can heritage ever catch up. Please forgive my math if I made mistakes, it’s a little late here, I was just getting ready for bed before I saw the comment.

  I stand by my original comments that Group RESPs are good for NO ONE except the group RESP companies.

• 21 Traciatim // Nov 14, 2007 at 10:56 pm

  Sorry, in TD year one it should read:
  “$1440 split in to 5 funds . . .”

• 22 Canadian Capitalist // Nov 15, 2007 at 8:14 am

  Jennifer: I don’t work for any bank or financial institution. I don’t work for pooled RESPs either. I am simply trying to save for our kids education in the best way possible.

  First, please tell us how a group plan’s fees are nominal when compared to the rock bottom fees of e-Series funds. Also, note that you don’t need any expertise to invest in fixed income. You can simply buy some GICs in a self-directed RESP that is as safe and secure and offers more flexibility.

• 23 Canadian Capitalist // Nov 15, 2007 at 12:12 pm

  Tim: Thanks for your detailed comments.

  Jennifer: I did take a look at Heritage prospectus and find it very similar to CST. I found nothing to change my opinion of group RESPs. However, if you have already signed up for a group RESP, it is best to keep contributing because the alternative (losing the membership fee) is even worse.

• 24 Todd // Nov 15, 2007 at 2:25 pm

  Thanks for this post CC. We just had our first kid and had to deal with a CST rep who kept calling starting on our baby’s due date. If I hadn’t read this post we might have been persuaded. He kept going on about the horrible hidden bank fees.

  Opening a family RESP at TD with efunds.

  Cheers

• 25 Lb // Dec 5, 2007 at 3:39 pm

  What is all this talk about “you must keep contributing”? I set up a “lump sum” account with Heritage and I can pay whatever I want whenever I want. This is all without putting any of my capital at risk. I know that there could be some higher rates of returns out there at TD. What if there is a big market correction in the near future. With my principle at risk, I may never be able to recover that.

• 26 Lb // Dec 5, 2007 at 3:57 pm

  Maybe you should be praising TD, but not necessarily at the expense of group plans. When discussing RESP’s with Investor’s Group, I found that the average MER is 2.5%. If Traciatim were to plunk this in his example, he may find that Heritage would catch up in the long run. I didn’t do the math so I may be wrong. Again…. assuming that your principle is NOT at risk.

  I only say this because my brother lost 10% during the 2000-01 year on his RESP when he was graduating with RBC RESP. Ouch!! He actually lost principle!!

• 27 Traciatim // Dec 5, 2007 at 9:22 pm

  Ok Lb, I’ll play along. This time I’m running through real numbers though. Lets say for instance that your child is just born and within a day or two your RESP is set up.

  You decide that heritage is the way to go so you buy 10 units. On page 46 of the Heritage RESP it mentions that a per unit price for lump sum contributions is 437.45. It bases this on the 6.08% (before fee) return, which i assume is what they target. You fork over your $4374.50 Of which they keep $1000 aside for safe keeping (safely locking you in the plan that is). They charge you a $3.71 charge just to make the deposit, and you get a $875.10 CESG contribution making your total invested 4246.89. Since their MER equivilant is around 0.57% after 18 years of a return and the return of your 1000 bucks they took you end up at near 12086.33 if I did my math correctly.

  TD with E-Funds. I read recently on wheredoesallmymoneygo.com that the worst rolling 10 year period since 1950 was 3.3%, the best 19.5%. Many people use the average return of 10% just for nice round figures. I will be using 5.5% return on bonds. At 10 years I start moving 15% of the equity balance of the funds in to bonds, so at 18 years a good chunk should be there.

  So, if TD makes 3.3% you end up with 8809
  At 6.08% you would end with 12972
  at 8% you would end with 16909
  at 10% somewhere near 22000
  at 19.5% you’d be at 79400

  If your MER was 2.5%:
  At 3.3%, 6439
  at 6.08%, 9422
  at 8%, 12229
  at 10%, 16016
  at 19.5% 56100

  All This proves that people that pay fees get far less return. If it’s Heritage, IG, or anywhere else. Fees dramatically diminish returns. I still stand behind my original statement and I’ll lump IG in with it.

  Also, I couldn’t find anywhere in the heritage prospectus that states your principle is guaranteed. Though they invest in mostly guaranteed investments so it’s very unlikely that you will lose money in your situation, it’s not written in stone.

  Interesting fact too… if you want guaranteed. North Shore Credit Union (first one googled, I’m sure there are others) offers RESP eligable GIC’s at 4.25%. Using these over 18 years would yeild 11923 vs the heritage 12086. You could also find GIC index linked products that guarantee principle and follow an index. Not sure of the fees here though.

  So many options, none of the good ones are pooled RESP providers.

• 28 FourPillars // Dec 5, 2007 at 10:33 pm

  LB - do you think the pooled providers don’t charge MER? When I took a look at CSTs financial statements, I calculated an mer of about 5% which is ridiculous for a fixed income fund.

  That said the problem with resp providers is that resp admin is quite complex and expensive and they don’t have the economy of scale that bank & MF companies do.

  Regardless, if you’re happy with them then you’ll do just fine with Heritage.

  Mike

• 29 Canadian Capitalist // Dec 5, 2007 at 10:41 pm

  Lb: I did note in the post that you should take responsibility for your investing if you set up a RESP on your own. If your child is going to university in a few years, you should not be risking the college fund in equities. But, if you child is 3 years old, you have a very good justification to take the extra risk in equities and the time frame to recover from set backs.

  If capital preservation is important simply invest the RESP in GICs and you’ll do at least as well as Group RESP plans.

  For me the bottom line is simple: with a group RESP, I don’t know what I’m getting. So, I choose to avoid it. Your mileage may vary.

• 30 Lb // Dec 6, 2007 at 10:51 am

  All very good points people….. I am just noting that MOST people don’t have the inclination, desire, or knowledge skill set to know what we are talking about here. They don’t know what research to do or where to do it. They don’t know who they should listen to as they are getting conflicting stories. I know they should take responsibility for their investing… I know…. I know….. I know…. but they don’t.

  I have seen it so many times. I think we are all agreed here correct??

  Therefore, they go to somebody who they feel may know what is best.

  I bring my car to a mechanic near my house to get fleeced because I don’t know how to fix it or diagnose the problem.

  Then I hear about the guy across town that may do it cheaper but they get their parts from somewhere else. I haven’t got a clue here. I know I should investigate but I don’t.

  With this being said, the Investor’s group people, many financial planners, and yes…. even some bankers will set families up in mutual funds with high MER’s. It is sold to them stating that there are no fees for RESP’s. They do not mention the MER’s. These MER’s can range up to 2.5%.

  I was a bank mgr in another life and know how it works. It is always about the almighty dollar.

  Oh yes… they are told it is a “self-directed” plan but many don’t have a clue which investments to put into their RESP portfolio, so they trust the person on the other side of the desk. I met one poor guy who was with a credit union who had his 3 year old twins RESP’s invested in term deposits yielding under 3% because he said he wanted safety. After all, the Credit Union guy knew best didn’t he??

  Most in this post have also commented on the fact that as the child ages, the portfolio should be shifted more to conservative bond type investments. Agreed. But now, the person at the bank who originally set up this RESP has long gone, as has their other 4 predecessors. Sound familiar?? People are trusting that the bank is taking care of their kid’s money so they let it ride. They don’t know any better. They are not taking responsibility for their investing as they should. So now they are sitting with $70,000 in an RESP paying a 2.5% MER = $1,750 by the way. And exposed to market risks. Thank you Investor’s Group. A LOT of people don’t take responsibility for their own investing….. did I mention that??

  Group plans may be the devil…. but I feel they have a place in this society. Folks put their money in and they can forget about it knowing that principle is safe and money will be there when their kids go to school. Yes there are fees… fees are everywhere in different disguises for those who don’t investigate. Yes there are slimy salespeople (renowned in the RESP company circles). Yes, there are penalties for pulling your money out early, or for taking time off. (these can be solved with a lump sum plan).

  I agree with what MOST people have written in this post but people should not be made to feel that they have done their children a great injustice because they invested in a group plan. As Canadian Capitalist mentioned in his/her last post, “invest the RESP in GICs and you’ll do at least as well as Group RESP plans.”

  The greatest problem is that there is TOO MUCH information out there for people to digest. Most people, when reading the prospectus for a mutual fund or a group RESP don’t understand it. Agreed. Capitalist mentioned that he/she “doesn’t know what (they’re) getting. So (they) choose to avoid it.” A LOT of people don’t know what they are getting at a bank, financial planner, or group RESP meeting. They just look at the bottom line. If it is growing, they are happy. Group plans, banks, and planners prey on these people.

  One thing that can be said about group plans is that they are consistent. Is every bank RESP the same??? Absolutely not. Some are better than group plans or “at least as good” as Capital mentioned above, some are worse like that poor guy who had term deposits and didn’t know any better.

  I would just like to acknowledge that all you people out there who locked into group plans…….. you’re still doing a good thing. You are saving for your kid’s future and you don’t have to worry about managing your portfolio or trusting someone else to manage it for you.

  You heard Traciatim point out that the numbers favour TD. I know, you didn’t know, and you went with a group plan. You are still doing OK. You are saving for your kid’s future.

  For all of you who stuck with me this far…. I have my children’s plans in both a bank (is CIBC but may soon be TD, thanks Traciatim) and in a Heritage lump sum plan as I want some no worry safety. Hell, I may not even be here in 16 years to “shift” my TD plans into more conservative investments. So I know that some of it is safe.

  Would anyone be willing to comment that all of these products have a place here as the market of those purchasing them is as varied as the products being sold??

• 31 Traciatim // Dec 6, 2007 at 1:08 pm

  I don’t think the pooled plans have a place at all. The IG one with the 2.5% MER, maybe, but questionable. The GIC based one at a credit union or banks, sure. I’m even in CST… consider me ’suckered’. Only I don’t blame the sales person. It’s not like she would get any sales if every time she made a point she brought up how much better you can do with other providers. She made the points that the company wants to sell and I signed up not knowing any better. Looking back it was a huge mistake. I want Canada to learn not to make the same one.

  See, people don’t need to understand the fee structure. People don’t need to be able to read financial reports. People don’t need to be a financial planner. The problem is people should be able to trust finance companies and RESP providers to have the clients future success as it’s primary goal. That’s not the way the finance industry works.

  People shouldn’t really have to worry about being suckered in to term deposits for 18 years. They shouldn’t have to worry about 2.5% MERs on marginal performance on products.

  The problem with my theory is that people just don’t care. In order for there to be change there needs to be movement in money to simple cheap products that work. In order for that to happen you have to scare people (see advertising industry for last 50 years) in to thinking they are not doing the right thing. If people can link ‘Pooled RESP’ to ‘My kid will fall behind their peers’ then score one for the home team. People will migrate to better products simply because the worst ones get weeded out for them. As people migrate, the providers will wake up and make better products. You can’t expect them to change if the money isn’t leaving.

• 32 Lb // Dec 6, 2007 at 2:56 pm

  Hey Traciatim,

  Are you aware that you can do what’s called a “conversion” with your CST plan. If you started when your child was a newborn, at around 7 - 8 years old, you can pay up your plan as if it were a 5 year annual plan. End of deal. You could then put future payments in a your TD RESP account. Ask your CST agent about that. They don’t offer up that option, you have to ask for it.

  You are bang on by the way about people not caring!!!

  To summarize then….. you are against all RESP’s that have high fees, and/or low yields regardless of whether they are “pooled” or not.

  I agree with you on that.

  Unfortunately competition and the potential for profits is what drives greed and, therefore, Corporate Canada .

  Even the “ethcial funds” have some high MERs and/or front end loaded funds. You must hate those as they are a real contradiction in what you feel is wrong in this investment world…. making money with high fees for a fund investing in socially responsible companies. What is wrong with that picture???

  You can extend that to fast food and obesity… people just don’t care!!!!

  So what would you suggest for the RESP family ready to forge into the investment world that just doesn’t care??

• 33 Canadian Capitalist // Dec 6, 2007 at 3:22 pm

  Lb: I’ve made many posts on how I invest the RESP funds of my kids. That’s a template that others can follow profitably.

  Regarding fees, I agree with you that most mutual funds aren’t worth their cost. Best to stick with a low-cost index fund.

  I would be more enthusiastic about group RESPs if despite the fees there is high attrition. But there isn’t. According to their prospectus, 12% of the EAPs come from attrition and fully 30% is “discretionary”. The rest comes from earnings of the RESP investments.

• 34 Lb // Dec 6, 2007 at 4:09 pm

  CC: Could you please expand on the attrition concept. I’m not familiar with that.
  You parenthesized “discretionary”. What do you gather from that?

• 35 Canadian Capitalist // Dec 6, 2007 at 4:18 pm

  Lb: Attrition is when people drop out from the group RESP. They get their contributions less enrollment fee back but lose all the earnings so far. The lost earnings is distributed among current members.

  The “discretionary” payments are made by the group RESP provider from the fees collected. It is not guaranteed and the provider is under no obligation to make these payments.

  Investing through a group RESP is nothing like investing in bonds / fixed income. There is plenty of unknowns on how much you can actually collect.

• 36 Traciatim // Dec 6, 2007 at 4:27 pm

  I wouldn’t say high fees AND low yields. If someone has short time frames or is very risk averse then GIC’s or index linked principle protected notes (if you can find a simple low fee one) are a fine choice.

  I’m against complicated things that charge high fees for service that you could get otherwise far cheaper and much simpler.

  I wasn’t aware that the option existed to exit from the CST plan by paying out. I’ll have to look in to it, thanks for the tip.

• 37 ben // Jan 13, 2008 at 9:09 pm

  I have a CST plan for my 3 year old and 1 year old. What would be my best option now? Should I minimize payments on it and start another RESP account? Does that make sense? Or continue to max out the yearly payments (to gain the maximum governement contribution) And how does the “paying out” plan work with CST? How much do you pay, how is that calculated?

• 38 Canadian Capitalist // Jan 14, 2008 at 8:07 am

  ben: I’m not sure you would be able to minimize payments without incurring heavy penalties. If you are already contributing the maximum, the best course might be to continue with the program.

  I’m not sure I understand the second part of your question. Do you mean the enrollment fee?

• 39 Helen // Feb 3, 2008 at 1:26 am

  I had a nightmare experience with CST last summer when I decided that it was time to stop “making deposits” to that plan and shift my daughters education savings to something else — my idea of diversifying her education savings. I had no problem discontinuing contributing to the RESP that I was investing in when I was approached by the CST sales rep, and I never imagined what was going to happen with the CST plan. I know for sure that I wasn’t made aware that I was going to be committed to making those “deposits” for that length of time or I wouldn’t have done it. I know this because I already had the idea of shifting her savings around before I ever met with the sales rep. I had no intention of paying into that plan until she was 18. Ultimately it didn’t matter what he may or may not have said, I signed up and that’s all that mattered.
  After many truly frustrating emails with a few representatives of CST and realizing that all my choices were grim, I decided to pull out. I know my daughter lost a pile of money and I’m still very bitter about it, but I could no longer keep giving money to an organization that was using such underhanded tactics to keep people in the plan. My instinct told me that if they could do this, then what’s to say what kind of surprise condition we would discover when it was time for her to go to school? How could I trust anything that the sales rep had told me when he clearly left out vital information? By pulling out my daughter lost all the government grants that had been put in, and the “enrollment fees”, in the $2000 range, this all happened last summer and so the details are a bit fuzzy now, also due to the fact that I went through the ordeal in a low-grade rage.

  Note for Ben: Don’t count on any option they give you as being “good”. You will lose money no matter what you do other than stick with what you signed up for.

  I, like Edward in post 10 above, cannot understand why this type of thing is allowed to continue.
  It’s shameful. I don’t know how those people sleep at night.

• 40 Kim // Feb 21, 2008 at 6:20 pm

  My husband and I just started contributing to RESPs through our local insurance agent for our 1 year old and 10 year old. My mom has been contributing to CEFI for my son and just started one up for my daughter. I had to go sign paperwork involved with this and had to endure an hour long sales pitch about the evils of hidden MER fees.

  I am all about research and after doing some reading I have come to the conclusion there is no way I am switching over. There are too many qualifications to meet in order to receive the scholarships, etc. I know the risks involved with how I am doing this now but I feel safer somehow. At least if I came into financial hardship I can stop my payments until I recover without losing all my profits!

  Bottom line is educate yourself so you can make the right decision for you!

• 41 Lb // Feb 25, 2008 at 1:37 pm

  Everyone seems to be under the impression that you must “commit” to payments under one of these scholarship plans. You can choose the “lump sum” option in which you contribute however much you want when you want.

  The salespeople don’t encourage this, however, as it is detrimental to their immediate commission.

  I wish they would just do away with these locked in payment plans!!

• 42 Mike // May 1, 2008 at 2:17 am

  I’m a CST rep and it’s true what a lot of you are saying. You CAN get screwed by cancelling early, and the front-end enrollment fee DOES slow down the growth of your investment in the first few years, and sales reps oftentimes don’t tell you everything - but that’s not just with Group Plan providers.

  I do my best to make sure that all my prospective clients know the risks involved with Group Plans - if they cancel or default then they only get their principal back, minus enrollment fees and forfeit their interest earned. So I encourage them to not over-commit on their contributions, so that they don’t run into problems with their payment obligations. They can also commit to only paying in to it for 2, 5 or 10 years - not always the whole 17 years. I have signed clients up for just lump-sums, with no ongoing commitments, even though it made me a much smaller commission. It’s all about knowing your client and doing what’s in their best interests. And I have no interest whatsoever in hiding the conversion option, because I’ve already been paid in full by the time the option becomes available. I suggest it to my clients all the time - they can either get out of their contract after 7-8 years with no penalty, or they can convert it and then write up a new contract for the same amount but get more return than they would have if they didn’t convert.

  I can state with absolute certainty that many parents still choose CST and other Group Plans, knowing full well the potential risks, and knowing full well not to expect huge returns. Very few people have the time, knowledge or inclination to research their investments. There is a significant subset who just want their money to be safe and who are not worried at all about cancelling their contributions and losing money, because they are committed to saving for their children’s future education. There are many who want to deal with a specialist - and nobody understands the government RESP regulations like Group Plan providers who ONLY do RESP’s.

  And people are often not worried at all about the fees, either, because with CST they can get a minimum 50% refund on their enrollment fees (which is non-discretionary, by the way) with a discretionary top-up to 100% refund. We’ve been refunding 100% for years, even though it is “discretionary”. True, your child has to be going to school to get this refund, but our participation rate is around 95%. How much of your MER have you gotten back? People LIKE that! There is definitely a place for Group RESP’s in the industry. Is everybody a bull on the stock market?

  By the way, CST donated $3.5 million in “discretionary” payments in 2007. The money comes from what is left over after we deduct our fees and cover our expenses. It adds significantly to the investment return. The 10 year average net return is 6.4%, not 4% like as has been suggested previously. What’s the average 10 year net return on a balanced-equity mutual fund - and which is riskier? And CST’s management fee is not 5%, but 0.5%. And about economies of scale, our assets are at $2.5 billion, so we’re not exactly tiny. Just to clarify.

  And yes, I did do the math on the enrollment fees. Group Plans ARE actually able to catch up to mutual funds with an MER of 2% - the average MER that the average person gets sold when they go to their bank - not everybody is savvy enough to pick their own stocks to track the index or buy into a low-cost index fund. People like that don’t go with Group Plans. But mutual fund salesmen sell the higher MER funds because they make a greater commission off them. You CAN do well with CST. Many people knowingly choose a stable 6% return with 100% protected principal, over a volatile mutual fund with no guarantees. Even stock market bears want to stay away from index funds, even if they have tiny MER’s, because of their percetion of the overall market risk.

  Why is it that some people have such a hard time accepting that not everybody is like them? If I don’t like it then it must suck and EVERYBODY should avoid it? C’mon!

  When mudslinging is going on, we all get dirty, and the client gets fearful - and does nothing. No savings for their children’s education at all. Is that what we want?

  I’m thinking that many on this discussion board are financial planners? Why else would you spend your time discussing Group RESP’s unless you had a specific agenda - to drive prospective clients towards what YOU are selling and making a commission off of. We’re all in the same boat, guys.

• 43 Traciatim // May 1, 2008 at 8:20 am

  So, Mike:

  I’m no financial planner, I’m a tech support agent in a call center.

  ” . . . it must suck and EVERYBODY should avoid it . . . ” Yes, that pretty much sums the whole thing up. It sucks, and everyone should avoid it.

  You claim the MER is 0.5% but that doesn’t include the enrollment fee, depository charge, Trustee and Custodian Fee, or Portfolio Management Fees. Let’s say for instance someone putting 100 bucks a month away for their kid, you have $10.00 (or 0.83% of 1200), 0.5% Admin, 0.015% Trustee, .1% - .3% Management, plus the enrollment fees. For a TD E-Fund account, all the MER’s are less than 0.5% and there are no other fees. How can you compare that?

  Plus, why did they change from 100% refund of your enrollment fees to 50% of enrollment fees refunded? Are they doing that poorly that they have to take peoples enrollment fees too?

• 44 Canadian Capitalist // May 1, 2008 at 11:29 am

  Mike: For the record, I am not a financial advisor. I don’t work for a big bank or mutual fund company and I couldn’t care less if your organization does than mutual fund companies or vice versa.

  A knowledgeable guy like you should know that even a 100% refund years down the line is not even close to “getting back the MER”. Let’s run a quick calculation, shall we? A newborn is enrolled in a group RESP and pays the $200 fee and receives a refund of $50 each in years 18, 19, 20 and 21. What’s the refund worth today at a 7% discount rate? Try $53. In other words, the enrollment fees has eaten up close to three-quarters of your $200 enrollment fee assuming a full refund. Of course, a 50% refund is only worth $26.50.

  Now, we haven’t even talked about the other fees that Traciatim mentions in his comment. So. let’s add it up for someone who invests $1,000 in a monthly plan:

  Depository charge: $10, which is 1%.
  Admin Fee: 0.5%
  Portfolio Fee: 0.2% (mid-range of the 0.1% to 0.3%)

  We are already at 1.7% and we haven’t even added the enrollment fees that “you get back”. So, tell me how is a Group RESP better than a high-MER mutual fund that charges 2% on a fee basis?

• 45 Mike // May 2, 2008 at 2:49 pm

  To Traciatim, we didn’t “go down” to 50% from 100%. Up until 2007, the enrollment fee was 100% discretionary (meaning we could refund from 0-100% at our discretion). In 2007, it became only 50% discretionary, BECAUSE we have a solid financial backing for this obligation.

  I’m not going to argue theoretics about Enrollment fees vs. MER’s. I’ve crunched the numbers. They work if you consider a 2% MER. Try it yourself. I’m not going to waste my time arguing with people who have already made up their minds about it.

  Thousands of parents are just happy with their CST (and other Group Plan) RESP’s. They work great for people who just want to save money and would’ve otherwise just done a GIC because they want their money to be safe. People who are deeply committed to their children’s post-secondary education and would never dream in a million years to cancel their savings plans. You are perfectly free to disagree, but that’s just your opinion.

  There are other opinions out there about mutual funds - “they suck and everybody should avoid them”. There are other opinions about the economy in general - “we’re heading into a major recession and we should avoid equities in general”. People are free to make their own choices - and many people CHOOSE Group-RESP’s, knowing full well all their options, as hard as that may be for you to believe. I deal with these people all the time. Over 90% of my clients are totally satisified (yes, I keep track of my numbers) - which, by the way, is a very high satisfaction rating compared with other products . So, hard as this may be for you to swallow, you are in the minority. I’m sorry you’ve had a bad experience, and you’re unfortunately not alone, but you’re not in the majority.

  The whole point of the matter is that one size does NOT fit all, it depends upon one’s risk-tolerance, their priorities, their goals … financial planners are supposed to review all of this before making recommendations. They don’t just say “this is the best investment - do it!” So please don’t generalize and pretend that you know what’s best for everybody else. You hate Group RESP’s. Fine. I’m not going to argue with you anymore.

• 46 Fred C // May 13, 2008 at 8:17 am

  Gee, I’m so confused. Can someone help me? I have a CST plan for my son who is four years old. I’ve made annual contributions of $1800 for 4 years, his portfolio is valued $8878. That doesn’t seem like good value considering the top ups from the government.

  Would it make any sense to pull the plug and start all over.

• 47 Traciatim // May 13, 2008 at 12:46 pm

  Hey Fred C, you are seeing the same performance that I am seeing. Nothing.

  It makes very little sense to leave the plan as you will lose your enrollment fees, which in the long run will be very difficult to make up over the next 14 years or so.

  If you were thinking of increasing your RESP contributions I would strongly recommend a separate plan from another provider.

  Hey Mike, I guess i was just misinformed when the agent kept saying ” . . . but you get all those back” whenever the fees were mentioned. I’m not sure if I still have the original material I had when I first signed up, but I’ll look for it to verify your claims.

• 48 Canadian Capitalist // May 13, 2008 at 12:53 pm

  Fred: Can you provide a breakdown? A $1,800 contribution over 4 years equals $7,200. A 20% grant puts the nominal contribution at $8,460, which means the growth is $418. It sounds about right, considering that initial contributions go toward paying the enrollment fee.

  As Traciatim and I posted elsewhere (read through the comments in the RESP category), it may not make sense to pull the plug because the biggest bit (the enrollment fee) is front loaded.

• 49 Lb // May 13, 2008 at 1:23 pm

  Hey Fred,

  As Mike pointed out…. you can consider the conversion option when your child is between 7 and 8 years old.

  Check with your CST rep. According to Mike [he] ” suggests it to his clients all the time - they can either get out of their contract after 7-8 years with no penalty, or they can convert it and then write up a new contract for the same amount but get more return than they would have if they didn’t convert.”

  People who don’t understand group plans very well (most of the people on this post) seem to ignore this option.

• 50 Lb // May 13, 2008 at 1:31 pm

  Hey Mike,

  Maybe you can explain why in the world people would want to “lock in” to an annual payment plan when they can simply lump sum every year for any amount they wish, without contractual obligation. With the understanding, of course, that the parents had their children’s best interests at heart.

  What do you guys get as commission?? About $70 per unit?An average $2000 per year contracted customer would give them about 17 CST units? Do the math. That is a big commission for a few hours work.

  Salespeople in these group plans have their own best interests at heart in my opinion. An $1190 commission(for a locked in $2000 annual payment) vs. a $300 commission for a lump sum arrangement upon sign up. Hmmmmm!!

• 51 Fred C // May 14, 2008 at 5:50 am

  Hey CC, the math doesn’t work.
  $1800.00 x 4 Years = $7200.00
  CESG @ 20%= $1440.00
  Total = $8,640.00
  Interest=$238.00
  TOTAL = $8878.00

  Same Investment with 4% Compound Interest would yield me with a total of $9442.00

  That’s a difference of $564.00.

  Hey Mike from CST, am I doing the math wrong?

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