Is a Group RESP Plan Right for You?

128 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?

• 52 Jonner // May 29, 2008 at 11:04 pm

  I had a Heritage Rep over justa few days ago – WHAT A SCAM. All they pushed was the final $$ value in 18 ++ years. Hardly c ould understand that fact that they suck up about 4500 in enrollment fees within the first few installments. I will never go with a group RESP – what a scam. Heritage RESP is a scam.

• 53 Scott // Jun 2, 2008 at 6:24 pm

  I’m a financial advisor here in Canada. A friend (and client) of mine dropped by the other day asking me to explaine his Heritage Education Fund plan to him. He began about 2 years ago with $100 a month contributed. His balance today is $1,682.08! There are deductions of $600 for membership fees, $10.60 depository fees, $60.60 insurance fee (that one got me steaming) and a slot for a fee for the Canada Learning Bond Admin fee (currently 0.00). Woof!

  I called the toll free number and spoke to a mechanical person who said I needed one of their forms to ask for a withdrawl (not true) and also spoke to a rude supervisor who refused to explaine the details to me. I was agast at the cost of this plan and the complete consumer rip off it is.

  It’s been said here before….stay away from group RESPs – goto your local bank or Credit Union.

• 54 Lb // Jun 3, 2008 at 10:07 am

  Hey Scott,

  FYI. The insurance on a group RESP is completely optional and the rep does not make any commission on it.

  The Canada Learning Bond which you……. umm….. seemed to bark at…… is for lower income families only. That family may not have been eligible for it. This is universal across all RESP’s (group plan or not)

• 55 Shirley // Jun 16, 2008 at 12:00 am

  Mike, thanks for your input. I was getting tired of having people who have no training or clue about groups RESPs trying to explain them to others. I also work for a group RESP provider – USC. Do we have fees? Of course we do; I have to earn a living and pay my way just you all do. Commissions of $70 per unit – holy cow – where? I’d like a chance at that kind of cash. For a few hours work? Do you how many hours a week I work, preparing for appointments, making appointments, answering clients queries, training meetings, travelling? My clients pay a front-end fee that gives them access to me any day of the week, evenings & weekends. I travel to their home at a time when it best suits them, and they are entitled to that service until their children have finished their studies and they no longer need me. Many of the most negative posts are from (a) those who clearly haven’t taken the time to understand the plans and their options (b) assume that everyone understands investing. Believe me, most of the people I meet have mutual fund investments for their RRSPs and don’t have a clue what that means, that there are managements fees as well, nothing. Some of them don’t even know they’re not guaranteed investments! And I don’t mean just the great unwashed, although they are a part of my clientele. They include university educated, some with MB As. They can’t, or won’t, do the research necessary to make educated decisions about the differences between funds, risk factors, markets, when/how to diversify, etc. They rely on their bank manager (or whoever opened their account) to choose for them. Most of them are under the impression that the banks (or other financial advisors) do this for free, because fees are never mentioned. If the questions is asked, the answer is No. No, because they don’t charge an account opening fee. Since MERs are “expenses” they don’t include them in the answers as to “fees”. Is that transparency? At least with a group provider, you’re told up front that you have fees to pay (and if it’s not part of the presentation and written on the application – file a complaint with your province’s securities commission).
  To address all the back & forth about whether group fees are comparable to MERs, and all the calculations done by Traciatum & Fred. Try visiting the web site sponsored by Ontario Securities Commission: http://www.investored.com. They have a nifty Mutual Fund Fee Calculator. For example, plug in $3000 ($2500 deposit + $500 CESG) and lock it in for 18 yrs. Pick any type of fund you like – equity, balanced, bonds and input the MER your fund charges. Check out the “loss of return” that your MER represents. That same investment – single deposit for 18 yrs – at USC would run $556.79 in enrolment fees (one time) + $3.50 (+GST) in depository fees (yearly) for a grand total of $623.27. If your child goes onto post-secondary education for 4 years, an equivalent of the EF paid ($556.79) would be available for refund to the student. If the student doesn’t go to school or goes to a shorter program, then the entire sum would have been your cost to manage the plan for up to 25 years (the max lifetime of an RESP). Oh – did I mention? In a mutual fund, you’ve paid MER on the entire amount – deposit & CESG – but in a group plan, no fees deducted are from the CESG. Expected return ( initial investment not included) $6249 incl interest on CESG at only 5%. However, USCI’s Net ROR over 10 years was 6.8% on the portfolio only. The principal is not guaranteed – but invested mostly in federal & provincial bonds, which is about as guaranteed as you can get outside a bank savings account. And that “discretionary” amount? It’s not the same in all group plans, but because USCI’s plans are sponsored by a non-profit foundation, and the foundation’s mandate is to return excess funds to eligible students, that “discretionary” amount might add as much as 20% to the return. It’s discretionary because the foundation doesn’t guarantee the amount – it’s dependent on the income earned and the number of students participating. As I said, however, not all group RESP foundations return excess funds and rely on attrition only. You’re right, though, attrition isn’t a huge amount, not like in the “old days” before the RESP laws were changed in 1997 to allow access to unused income and only students who went to university claimed the money. But that only goes to show the flexibility of the plans. Your income isn’t lost if your kid drops out of high school or decides to take up a trade or college instead of university.

  By the way – Scott, I’m glad you mentioned that you’re a financial advisor in Canada – since they’re not available to non-Canadian residents. The CLB is for available only for children born after 2004 and whose parents receive the Supplement to the Canada Child Tax Credit (usually, income less than $35K). The government actually pays $25 one-time to the RESP provider as an administration fee and no further fees are allowed to be charged for administering and/or investing. Therefore, a CLB may not be deposited into a mutual fund. This is another unfortunate example of the blind leading the blind. If you were a real friend, you would have told him that you couldn’t advise him regarding his group RESP because you don’t have the required knowledge. Also, if you were to call our head office and attempt to elicit information about one of our subscribers, you would be turned away as well. Same as if you called his bank and asked questions about his bank account. It’s confidential. Furthermore, the toll-free numbers are staffed by Customer Service, not registered sales reps. They are employed to assist current clients with their accounts and are not licensed to sell RESPs (which means explaining in detail how they work over the phone to non-clients). If you really wanted info, why didn’t you contact his sales rep? I believe the name & number would be found on the statement. And yes – a form IS required to withdraw money from an RESP. It’s a registered investment – don’t you think proof is required that we’re dealing with the actual client before collapsing his RESP and tainting his child’s CESG? (Please let me know if you need me to explain “tainting”.)

  I agree on one thing – pooled RESPs aren’t for everyone. But they sure help a lot of people who otherwise wouldn’t have any savings for their kids’ education, and don’t have a clue about chosing and/or managing their portfolio. As for the “locked in” aspect – guess what? commiting to a savings plan helps people prioritize their disposable income. It’s like the “pay yourself” principal. Most people save what they have left, after they go on vacation, eat out at the restaurant, go to the movies, which means mostly they save nothing or very little. Commiting yourself to your child’s future is a bad thing? And you needn’t contract for 18 years – most group providers have 5 and 10 year options, along with single deposit. And, yes conversion to a single payment option is usually available approx. 2/3 into your term. I also saw mention that parents should prioritize their RRSPs before their child’s RESPs? Unless you’re a much older parent, your kid’s gonna be finishing high school long before you’re ready for the easy chair. Besides – who said you can’t split your investment? Why don’t you set up a monthly contribution to your RSP and then take the resulting tax refund and put it into your child’s RESP? Makes a whole lot more sense than waiting until the last minute (a few years before they graduate high school, assuming you bought your house when they were born and it took you 10-15 years to pay down your mortgage). That is, of course, unless you decided to buy a bigger, more expensive home along the way and get into another mortgage (quite often the case in the real estate boom of the last few years). All the advice I read in the financial sections of the newspapers is to set up regular contributions to your child’s RESP as soon as he/she is born and if you can, put some money into your RSP. Once your house is paid off and your kids in college, you can maximize your RSP. After all, you’ll only be in your 40’s and most people realistically will not retire completely from the work force until after 60 (according to statistics, anyway). (My step-father retired at age 55 and is now 93. I don’t think he expected to live this long. His retirement home costs more than his current income, so every month he withdraws from whatever his has left. Luckily he still has a little bit and so doesn’t have to look around to move into a cheaper facility. Had he known, maybe he would have retired at a later age.)

  Take the time to look at both options – “self-directed” or group. Maybe do a bit of both. Compare more than one before deciding. Ask questions – write down the answers. If the answer sounds “too good to be true”, ask to be shown where it’s written in the prospectus. Don’t invest with someone just because they’re a friend or relative. In two years, they may have moved on to another job – your investment isn’t with them, it’s with the financial provider.

  By the way – TD does have pretty good returns. BUT – if your income qualifies you for the Additional CESG – 10% extra on the first $500 deposited annually, per child, if your NET family income is under $75,000 – don’t expect them to apply for it. Their web site clearly states that they offer the 20% basic CESG only – no Alberta, B.C. or Quebec extra grant available for residents of those provinces either. (or the CLB if you’re entitled). I doubt they’re the only ones not offering it either. RBC’s web site mentions the basic 20% only. You’re forfeiting a good bit of cash (plus its income) over the years that your child’s entitled to. (All the group RESPs providers make available all the grants out there, of course.) So, don’t forget to ask your RESP provider if they’re getting that extra grant for you. My guess is that they’re not all that interested in investors with incomes under $75K (you don’t have enough disposable income to invest to make you important) and can’t be bothered with the extra expenses – computing, accounting and regulations – that come with it. And their shareholders (which isn’t you, unless you actually own shares of that institution) are much more interested in keeping up their share of the profits than getting your child the extra money the government’s offering (which is, of course, just your taxes returned in a different form) and which will help fund his education.

• 56 Lb // Jun 16, 2008 at 10:12 am

  Excellent post Shirley. Applause….. well said.

  You have summed up what a lot of people have been trying to say.

  The only downside, which a lot of group reps don’t mention is losing your interest and fees if deciding to withdraw from the plan after one year. This is where a lot of frustration sets in.

  A family has one child… locks in to a $2000 per year RESP group plan. They are going to have another child. Things don’t work out…. they need VERY expensive invetro. They want to stop their RESP payments for the first child for a while. They can suspend but then would have to make up the missed payments. Unaffordable after $75 000 in fertility treatments. These factors were unforseen at the time the initial RESP was drawn up.

  The first $2000 payment was mostly fees (and they understood that). It is too early for conversion. They can reduce the amount of their payments for the first child but they are not reimbursed any of the fees.

  Bottom line…. this family has enough financial worries, not to mention family hardships. WHY CAN’T GROUP RESP’S BE MORE FLEXIBLE AND NOT LOCK FAMILIES IN? The scenario above is a real one.

  Reps don’t usually present the lump sum option because the up front commission is not there for them, even though this may be a better option for this family.

  In the end,this family just ended up pulling the plug and forgoing the close to $2000 in fees. The next payment will be used to try to have another child instead.

  Other than this one little pet peave about group plans, I LOVED THE WAY YOU EXPLAINED YOUR POSITION.

  Tracatim and CC will have some “yeah buts” and Scott may even “bark” a little, but they really don’t (in my opinion) understand group plans. It is obvious from their posts. But in their defence, a lot of people stay away from what they don’t understand. I accept that.

• 57 Traciatim // Jun 16, 2008 at 10:49 am

  I don’t have too much time to comment today, but Lb, the reason group plans lock people in, and are inflexible, is by the time the family realizes the poor performance, the high fees, the need of funds for some unplanned event . . . it’s already too late and they have your money.

  I understand my plan just fine, it’s performance is terrible, it’s costs are high, and I signed when I was 22, just had a child, and knew that an RESP was a good thing. They had an ad in the package that was dropped off to us at the hospital (IE, Ambulance chasers). I would have been far better off if I spent an hour a month researching RESP options for a year and signed up with something useful and not predatory.

  I was naive and signed in haste, my mistake. If I can keep others from making my mistake I will be happy.

  Shirley, that $70 bucks per unit add up quick when two young parents that worked at call centers at the time were able to easily get 10.5 Units. . . $735 bucks for two one hour visits is a pretty good salary to me. The same amount of time would be spent on a 25 unit plan too . . . which may actually pay for 4 years of university.

• 58 Canadian Capitalist // Jun 16, 2008 at 12:12 pm

  Shirley: Get your facts straight before calling everyone else “clueless”. Group RESP plans charge a “Administration Fee” of 0.5% per year plus 0.08 to 0.21% “Investment Counsel Fee” per year of total assets in the program. A mutual fund would call that expense of 0.58% to 0.71% as a MER. These charges are clearly stated in the USC prospectus in Page 13. So, it’s incorrect to claim that the enrollment fee and depository fees are the only expenses.

  BTW, I don’t know why the Group RESP reps insist on comparing the group plans with a 2.5% MER actively managed mutual fund. Maybe it is comparable, maybe it is not but that’s hardly the point I am making. Show me how a Group RESP is better than a self-directed RESP constructed with low-cost index funds.

  I find it funny that people who have a vested interest in showing that these products are “better” say everyone else “don’t understand these products”. And what do they say about not asking a barber if you need a haircut?

  There is no question that everyone should be fairly compensated for their work. However, the record of Group RESP programs in this regard isn’t perfect either. Check out this 2004 industry report into the scholarship plans by the Ontario Securities Commission (maybe they don’t have a clue either):

  http://www.osc.gov.on.ca/Regulation/Rulemaking/Current/Part3/cmr_20040714_33-725_spd-ind-rpt.pdf

• 59 Lb // Jun 16, 2008 at 2:26 pm

  CC:

  I think the reason that a lot of people think that you don’t understand group plans is that you said it.

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

  “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.”

• 60 Canadian Capitalist // Jun 16, 2008 at 3:34 pm

  Lb: Fair enough Though I’d point out that it’s more than one year later now and I’ve read many prospectuses and I have a fairly good understanding now. At least, much better than the folks who are selling these products and claiming that you pay no fees other than enrollment and depository charges!

  I think your position is that the returns on these plans are comparable to high-MER funds sold by financial institutions but you are not happy with the lack of flexibility of group RESPs. You may be right about that and we aren’t fans of high-MER, actively managed, sales load junk either. Our position is that investors who take a bit of responsibility for their portfolio can do much better on their own.

• 61 brossi // Jun 17, 2008 at 7:26 am

  Hi guys…. I’m new to this. I don’t know anything about these mers or mutual funds. All I know is that I put $2000 every year in a RESP in a company called Heritage. My daughter is going into her 4th year. We got a cheque for $36000 a few years back and then my daughter gets just over $19000 every year for school. I’ll let you guys do the math. Maybe I couldve done better in someting else. I don’t know. I didn’t have to worry for 18 years about us loosing money and my kid’s school got all paid for.

  Now I’m just a hard working dad who trusted someone a long time ago and it worked

• 62 Rachelle // Jun 21, 2008 at 2:05 am

  All I have to say is that there certainly is a lack of good information about RESP’s out there.

  I looked into the group plans and I was unimpressed with the prevarication of the Sales Reps. All they could talk about was the CESG of 20% and CLB like they were the ones earning this for me. I tried and tried to get a real rate of return out of them and they continually avoided the subject. One of them said they buy 7% Government Savings Bonds !!!

  I did not even inquire into the other fees because I was so turned off by their shiftiness and unwillingness to answer my simple question.

  I then decided to get a self directed RESP but then found that Etrade does not apply for all the grants I am eligible for. In my income bracket that is like giving up about $800 !!!

  I have now decided to go with two RESP’s One with Investors Group because they will apply for all the grants on the initial $500 contribution. The other I will open with Etrade and put the rest of my annual contribution in. They will only apply for the Basic CESG.

  Honestly after all the research and time and energy I have put into this I have only one thing to say

  IT SHOULDN’T BE THIS DAMN COMPLICATED

  There is a complete lack of clear concise simple information.

• 63 Amanda // Jun 25, 2008 at 9:37 am

  I’m with brossi above. The group plan was the way to go for us “un-money wise” folks. I used USC group plan for my son. I didn’t have a clue about anything about investing and mutual funds.

  Boy, were we happy with what we got for our son’s college. We are looking at the same thing for our Granddaughter.

• 64 pius // Jul 7, 2008 at 10:21 am

  Thanks everyone. I have no idea about these resps. I am signed with Heritage for first child. It is doing well. My nabor is loosing money with the TD index fund CC talked about this year even with the goverment grants. Mine is doing good. I am going with heritage for new child as well.

• 65 almo // Jul 9, 2008 at 5:27 pm

  Sucker or not, I signed up both kids for the CST 10-yr plan. I don’t consider myself an investment novice, but I also don’t have time to actively monitor/manage mutual funds everyday either. And I’m not affiliated with any bank or investment company that has anything to gain from my opinions.

  Despite everyone’s claims that you can do much better than CST and despite the historical proof that the stock market has outperformed every other investment vehicle in the free world “over the long run”, I have yet to see my mutual funds (MF) returns really impress me “over the long run”. And my investment *run* so far is around 18 years. Maybe an obvious statement, but it is all about timing!

  Take the recent TSX market performance. If you bought an index fund just a month ago when the market index was over 15000, and look at it today where it is below 13700, guess what, you just lost almost 10% of your portfolio. So which is it, high front-end fee on CST taking away a big chunk of your money, or low MER on an index-fund losing 10% over last month, take your pick. You are still out 10% or more, and it will take more than a 10% rise in the index to make that up even if you dollar cost average.

  As my stomach has twisted in knots after reading this thread and wondering if I made a bad decision on buying CST, I guess I am looking for some self-reassurance that I made the right choice. So please tolerate my ramblings.

  But back to my original train of thought, yeah the stock market probably will outperform everything else out there “over the long run”, but it is all about timing. And maybe I just have the medusa touch, but I don’t thing the average schmuck (like me) can do much better than the (crappy) 5% return of a group RSP unless they make it a full time job and watch the market every day. And even if you do, once again it is all about timing.

  After seeing my Mutual Funds erode 30-40% during the 2000-2001 stock market meltdown, earning a *plus* 5% sounds a helluva lot better than earning *minus* 40%. Yeah I eventually recouped that over the following 6-7 years and even made a little more, but think of how much further ahead I would have been if I had started my investing in 2002 instead of 1999.

  So once again it is all about timing. If you are convinced that 13500 is the low point of the TSE and that it will hit 20000 or 50000 by the time your kid hits university, then go for it. Me I’m not sold on it. Actually, I am quite convinced the market will hit 20000, but it likely won’t be at the right time when I need it to, and even if it does, most of us are too stupid (greedy?) to pull out of it and quit while we are ahead.

  The only people who make money on the stock market are brokers through their fees. Hmmm, this *fee* thing seems to be a recurring theme. So, despite high front end fees or lower MERs or whatever you claim I can make buying GICs on my own at the local bank, I’ll stick with the near-guaranteed 5% I will make as opposed to the high-hopes of making +20% and the more likely returns of -20% on the market. If nothing else, going with CST or any group RESP for that matter, will help protect me from me, and in the end, I know I will have at least 5% gain for near-zero effort and hopefully my kid will want to go to university by then.

• 66 truman // Jul 23, 2008 at 9:08 am

  Thanks for the input everyone. The group plan sounds like the way to go for me. I haven’t got a clue about investments and mutual funds. I want to be able to go to bed at night not worrying about my RESP.

  Special thanks to Almo…… you summed it all up for all us “unknowledgeable” investors. Go figure I can disassemble and assemble an entire engine in 4 hours but I don’t know a mutal fund from a GIC.

  Group plan here I come!!!!

• 67 Canadian Capitalist // Jul 23, 2008 at 10:26 am

  almo: What is risk? Investments fluctuating in value is a risk but don’t forget inflation. Inflation is a huge risk, especially since education costs have recently trended well above inflation. If you are making 4% from bonds (and group RESPs will have bond-like returns) and education costs are increasing 5% a year, your savings are losing ground. For young children with 10 to 15 years from university, equities provide a chance at a higher return. That expected higher return has a risk — your investments could fluctuate in value. That’s a trade off I’m willing to make. It is the classic dilemma between sleeping well and eating well. The trick is finding a balance not simply investing everything in low-return assets.

• 68 truman // Jul 23, 2008 at 10:33 am

  Thanks Can Cap. Almo is still right though. You said something about equities. I don’t even know what those are. I eat very well (just ask my scale) and I plan on sleeping very well with a group plan.

  My friends RESP fluctuated alright. He lost $3000 this year in some bank plan and his son is going to school in September. When can he make that up? That is not a trade off I am willing to make.

• 69 truman // Jul 24, 2008 at 8:29 am

  I stand corrected Can Cap….. I apologize. I was talking to my friend last night and he didn’t lose $3000 on his bank plan RESP. He lost $4700.00 this year. Can you imagine? That is one semesters worth of tuition!!!

• 70 Canadian Capitalist // Jul 24, 2008 at 10:15 am

  truman: I have no idea what your friend invested in. If he invested every penny of his kids education funds in US financial stocks, I wouldn’t be surprised at all. But, is that what I’m doing? Not at all. I am invested in a diversified portfolio of low-cost funds.

  Just out of curiosity, I just checked my kids’ accounts and it has “lost” 2.7% (we’ve been contributing since 2006). I did mention in the lost that going the DIY route means taking responsibility — that includes setting an asset allocation and sticking to it, not speculating in the stock market.

• 71 Traciatim // Jul 24, 2008 at 10:31 am

  Truman, I have to agree with CC on this note. By the time my kids are a year away from school I will have extremely little exposure to stocks. Currently I’m in a pretty exposed position in my Son’s (He’s three) RESP having only a couple of index funds that track the equity markets around the world. So far I haven’t had near the hit you describe above (Though I haven’t sat down and calculated it, it’s probably close to down 4% or so). I don’t really log in to look at it that often so I don’t know off the top of my head.

  Also, being down 4700 on a 100,000 portfolio isn’t really that bad . . . if you have 10,000 instead it’s a massive hit . . . so use percentages so that comparisons can be made.

• 72 truman // Jul 24, 2008 at 11:58 am

  See what I mean…. everything you guys just said to me is in another language. The words I did understand was “lose”, “lost”, and “down”.

  From what I understand, these words are not all that common in the group plans….. and that’s what I understand.

  My friend trusted someone at a bank to probably do all the stuff you guys were just talking about. He didn’t fair so well.

• 73 Traciatim // Jul 24, 2008 at 12:26 pm

  Hey Truman, those words are in the group plans, they just mask them with things like ‘Enrollment Fee’.

  Take my case for instance, when I was 22 my daughter was born. In the pack that the hospital gave us was a card for a rep from CST. I signed up and proceeded to give them a shade over 7 grand over the years. Currently we stopped paying our monthly amounts in to our RESPs because my spouse went to school and is attempting to go in to business for herself. Stopping my sons RESP payments I logged in to TD and hit cancel on my payment plan. It was done, no questions, fees, or problems.

  That transaction cost me $2100 in CST, since now I log in to my account and it’s worth about 5K as my enrollment fees will now no longer be reimbursed unless I pay all the payments we missed or buy out my units by giving them lots of money.

  It’s very difficult to look forward and ensure that over 18-20 years you will be able to make payments the whole time with no changes.

  These two options are very different from each other and in both cases doing something will be far better than doing nothing. If you really want guaranteed returns you can go to a bank and open an RESP using guaranteed income certificates (GICs) only . . . you will probably pay no fees at all. I would guess that you would do far better and be even more secure that with a group plan. This is especially the case if you need to make a change in the future, like in my case.

  Also, if you look at you’re friends portfolio and ask how much money did he deposit, and then ask what it’s value is now I would be willing to bet he isn’t ‘down’ at all. Probably much further ahead than one would be if in a group plan.

• 74 Shirley // Jul 24, 2008 at 12:38 pm

  Hey Traciatim,

  Out of curiosity, why didn’t you “convert” to the 5 year annual plan?

  It would have saved you a bundle.

• 75 brossi // Jul 24, 2008 at 2:02 pm

  Triciatim:

  Take my situation. I was just a little older than you when I started my family. The group RESP was FANTASTIC for me. I didn’t have to move anything around, didn’t have to worry about “exposure”, whatever that is, and I slept well at night.

  Just goes to show you…. different plans for different people all with the same good results…. educated children.

• 76 almo // Jul 25, 2008 at 4:46 pm

  Yes CC, I am very familiar with the various forms of risk, no matter how they are disguised. I have been gambling on risk for the better part of 18 years in the stock market and my conclusion is that it is all about timing. Certainly that is no stroke of genius on my part, but sometimes you just have to experience the ups and downs to fully appreciate the different forms that risk can come in. You can make a bundle *if* you time it right and get in and out at the right time. You have summed it up nicely by saying that it is the balance between eating well and sleeping well.

  And don’t forget that *balance* is another word for *diversify* which brokers and financial advisors like to throw around. It is really just code-word for, “I don’t know what the heck I’m doing, so let’s spread the risk around and hope for the best.” I’ve lived through all that too. And here’s some more honest advice on the stock market, “only invest what you can afford to lose”. If you consider the absolute best case and worst case of each investment method, you can use that as your guidance for choosing an investment vehicle and determine your risk tolerance. GICs: min gain=2% (your bank may vary), max gain=4.75%. Stock Market: min gain= -100% (lose it all), max gain=200% (no true max, but over an 18-yr period until your kids hit college age, you are unlikely to see the stock market do much more than that after things average out over the long run). No risk, no reward, right?

  So lets call inflation equal whether you go with stock market or GICs. But if you are invested in the stock market, not only are you susceptible to the risks of inflation, but you also have to contend with employment conditions, fluctuating world economies, wars, natural disasters and terrorists. It is a chicken-and-egg debate about whether these cause inflation or inflation causes (some of) them. And it used to be that in times of economic trouble, the best thing a country can do is go to war; unless of course, it was a war that got you into economic trouble (eg. USA).

  I do sleep better knowing my CST money is immune from most of these risks, except of course inflation, to which everyone is subjected. With fixed investments like GICs at the bank, you can at least ignore the dropping of the stock market, for a while. But at best, it is a 5-yr GIC and then at renewal time, you are subject to the effects of all the aforementioned risks. Therefore, your renewal rate may be much higher or much lower depending on market and global conditions.

  To be fair, I did check various sites and the best 5-yr GIC I see right now is around 4.75%. Not bad at all in this economic climate. So GICs don’t sound too bad. But I also checked the investment portfolio of CST and they have various short 1-5 yr and long-term 10-30 yr bonds yielding in the neighbourhood of 4-8%, with the majority of them being in the 4-6% range. So unless I’ve been completely lied to by CST, if after all expenses are paid, I still come out in the 4-5% range, then I’ve done just as well as the GIC. I didn’t do all the calculations, enough people on this thread have already done various forms of them. I’d rather not pay the up-front expense, but in the end, if I’m still essentially guaranteed to be coming out with *plus* 3-5%, even after paying all expenses, then I can live with that. As my stock broker would say, don’t worry about my trading fees, if I can still make you over x% on an investment after all fees are paid, my fee is irrelevant. True enough, unless you are selling your stock at a loss. Anyone figured out a way to make the CST fee tax deductible?

  So to me, CST sounds like it is roughly equal to plain bank GICs, and I don’t hold much faith in the extra kicker bonus you get from CST based on people dropping out or whatever, call it gravy but don’t factor it in to the best-case worst-case scenario.

  And just to be controversial, I am not saying that CST or any other group RESP is better or worse than bank GICs or other guaranteed bonds or Tbills. Originally I started this self-debate trying to convince myself that I did the right thing with CST. But I do think if you are in a fixed-term investment, then you should stick with it. I can remember a few years ago having money in a 5-yr bond at 9% only to be convinced by my “financial advisor” to transfer it to some MF where he expected I could earn well over 15%. Nope, never happened, it went negative, but then again it was all market timing. And I wonder if those who pulled out of CST would have been better off to stick with the plan? You traded a *guaranteed* 5-9% or whatever you were promised by your CST rep, for a speculative x% in the stock market with no guarantees. And you took a hit on early withdrawal, so you are starting off at *minus* y%. I can’t imagine what you have to make in a MF to get that y% back and still make x% on top of that. At least (x+y+z)%, where z is the extra amount you need to recoup to return y% to zero/neutral.

  So thanks for your vote of confidence Truman, I’m no great prophet, and I’m certainly no great profit either , but I guess my main grumbling is that I am completely disenchanted by the stock market. It leads a lot of people down a *get-rich-quick* mentality and even down a *get-rich-slow* mentality since I’ve always been told that “over-the-long-run” the stock market will outperform everything else. (See my previous rambling about *timing being everything*) As I said before, the only one guaranteed to make money at the stock market is the broker on trading fees. The rest of us are just pawns in the big game of stock market chess.

• 77 Linda // Jul 29, 2008 at 5:14 am

  We invested in a group plan with USC two years ago. I recently found out that only principal contributions could be accessed during my child’s first year of university. All government grant money, interest, and enrollment fees paid could not be accessed unless my child attends year two or higher. withholding the grant money seems unethical to me, since the money is from the government for post-secondary education. I feel it should be available even if my child takes a one year course. Does anyone else have thoughts about this?

  Also…my overall experience with USC has been very negative. We were told many lies during the sales pitch and we are now feeling stuck contributing money to an organization that , we feel, behaves unethically. I think that groups sales reps prey on families stil adjusting to a new baby and all the emotions that go along with that. Shame on you!!!

• 78 Canadian Capitalist // Jul 30, 2008 at 12:24 am

  truman: Fair enough. I don’t want to defend all the lousy “advice” that passes for stock investing. But, I do believe that, in this age of disappearing defined benefits, all of us have to learn the basics of investing, whether we like it or not. I put “lost” in quotes because it is not a loss until I sell and investing in stocks means putting up with markets where prices drop precipitously. Fixed income investments are less volatile but after netting out inflation returns will be low.

  almo: Your experience isn’t unique at all. Many studies have shown that investors don’t earn anywhere near market returns due to two reasons: expenses (the many layers of financial help we pay for) and emotions (selling GICs to buy mutual funds that could make you 15% in your example). Given these two drawbacks, what I’m trying to do is mitigate their effects by investing in low-cost funds and setting an asset allocation and sticking to it. Investors following this recipe have a good shot at earning whatever returns the market Gods give us.

  It’s true that stock brokers and financial help suck away the returns, but guess what? The group RESP guys are financial help as well. Who do you think pays for the advertising and sales people? You are correct in pointing out that if volatility scares an investor, they could get the same or better returns by investing in GICs. It’s simple logic — you are not paying for help and you pocket the extra returns. Not to mention the flexibility — if circumstances change, just skip a contribution or two and catch up later.

  I should point out that whenever I talk about stocks, it is the market as a whole. Individual stocks can go to zero but it doesn’t make sense that the entire market could go to zero. If that’s a reason to avoid the stock market, it’s a reason to avoid bond markets as well: the Canadian Government could default and refuse pay the principle back.

• 79 lucy // Jul 30, 2008 at 2:21 am

  Heritage RESP PLAN IS THE BEST STRONGLY REKOMEND

• 80 ED // Sep 10, 2008 at 7:45 am

  I have a son for whom I have contributed for 15 years in the classic USC plan. This was a huge mistake! Our son is in his 3rd year of postsecondary education, but has switch programs. We have only received the return of our contributions, but no investment returns or grant. This plan only works if he is in a four year program and does not switch to another program. We still have to pay tuition but get no benifit from our savings. The people at USC are very uncooperative.
  This company & their plans suck big time!

• 81 Ben // Dec 8, 2008 at 1:19 pm

  I have been approched by a few sales rep from the group plans companies and they sound a load of bs. They are trying attack the banks. They said they can guarantee your principal and have higher interest than the bank’s and never mention any costs associated with investing with them. They just sound very unprofessional. I honestly feel like they sound like con artist.

• 82 rainmaker // Dec 15, 2008 at 2:43 pm

  Hey Ben,

  Funny…… I was just at two banks whose PBR’s told me that their banks didn’t have any fees related to RESP’s. What they failed to tell me is about the MER’s associated with the mutual funds that the RESP money would be invested in. Later research showed me that it would be 2.3 and 2.5% respectively.

  I asked them about the new Quebec Government grants…. both left the office…. came back and said they weren’t sure.

  They just sound very unprofessional. I honestly feel like they sound like con artist.

• 83 Traciatim // Dec 15, 2008 at 3:25 pm

  Rainmaker, yes you are correct that many places charge big fees for RESPs. You did the right thing, and if everyone would avoid products with high fees the products wouldn’t exist anymore.

  Since I’m not in Quebec I can’t comment on how the extra money will be included in the RESP from different institutions, but don’t give up your quest for a rationally priced product from anyone other than the group plans. I have yet to come across a group plan that would be a good choice.

• 84 Rhonda // Apr 9, 2009 at 11:16 am

  Mutual funds DO NOT GUARANTEE your principal investments. In 2007 they looked pretty good, but in 2009 they showing huge losses.

  Universitas Trust Funds offers:
  - Principal 100% Guaranteed
  - 10 year return is currently 6.68%
  - Total Expenses of 1.24%
  - Membership Fees that are the lowest in the industry
  - Only group plan that 100% guarantees the full refund of the membership fees at maturity.
  - Flexibility to meet the RESP needs of all families.

  Group plans are not all created equal and it certainly is important to do your research.

• 85 Canadian Capitalist // Apr 9, 2009 at 11:37 am

  Rhonda: One reason I’m disappointed with Group RESPs is that the frequent misrepresentation of fees. Even here, where fairly astute investors lurk, you are claiming that “Total Expenses” are 1.24% whereas according to your own prospectus, just the “Management fees” plus “Investment Management Fees” adds up to 1.35%. In addition there are “depository fees”, “trustee fees”, not to mention losing any earnings on the upfront membership fees until the plan reaches maturity.

  Do you still maintain that “total expenses” are 1.24%?

• 86 Rhonda // Apr 9, 2009 at 1:17 pm

  Canadian Capitalist: The breakdown of fees for 2008, as shown in the Management Report dated Dec.31, 2008 are as follows:

  Admin Fees.: 1.08%
  Trustee and Depository Fees: 0.021%
  Broken down as follows:
  Trust Eterna Inc Trustee Fee: 0.001%
  CIBC Mellon Depository Fee: 0.003%
  RBC Dexia Investor Services (Trustee &Dep): 0.017%
  (Universitas recently moved from RBC Dexia to Trust Eterna and CIBC Mellon)
  Portfolio Management Fees: 0.14%

  So the actual TOTAL fees are 1.241%. The 0.001% difference is a result of rounding to the nearest hundredth, which is a standard in the investment industry. So, yes I do stand by the 1.24%.

  Over the past 10 years these fees have steadily decreased:
  10 years: 1.57%
  5 years: 1.38%
  3 years: 1.30%
  1 year: 1.24%

  As a Non-Profit Organization, we know that the more efficient we operate, the higher the scholarship returns. Fees are on a cost recovery basis only and our results speak for themselves.

  I agree with you that there are representatives that may not be giving all the data. This is true of banks, investment companies, etc. Consumers have to ask questions, do their research and get up to speed with how all of the options work. When representatives misrepresent their product then consumers should report this to the company and to the respective Provincial Securities Commission.

  As for the Membership Fees not attracting interest you are correct. They do, however qualify for the CESG. Again, Universitats Membership Fees are 3% below the industry standard and it is the only group provider that guarantees the return of these fees upon maturity.

  I have done extensive research on GICs, Mutual Funds and other group plans. I believe that all of these play a role in financial planning. Just as not all GICs and Mutual Funds are created equal, neither are all Group Providers. Again, consumers must do their homework. If a representative is evasive or talks lingo that they can not understand, they need to be cautious. Consumers should never feel pressured to invest, but should feel confident and knowledgable in the choice they are making.

  Universitas offers an excellent investment option for education with no risk to the principal, low operating expenses and a history of solid returns.

  You can access the 2008 Management Report at http://www.universitas.qc.ca/documents/20090330_rp_direction_ang.pdf

  I am always open to discussions, as I believe it gives us all an opportunity to learn.

• 87 Novice // Apr 20, 2009 at 1:59 pm

  Rhonda – your link above doesn’t work…..not the best way to prove your argument but I’ll assume technical glitch

• 88 Allawi // Jun 3, 2009 at 3:19 pm

  I just wanted to thank you all guys for this excellent post. I was just about enrolling into Heritage group RESP and I read this post along with similar one in milliondollarjournet.com which prevented me from doing this terrable mistake.

  Right now, My kid RESP with TD e-Funds.

  Thanx again.

• 89 Steve // Jun 17, 2009 at 9:27 am

  Wow. What discussion. I haven’t had my heart rate jump and settle so many times since I was last at Canada’s Wonderland.

  I fully understand the risks of the market. I just bought a house and had the down payment in GIC RRSPs for the first home plan and nearly lost everything moving it into mutual funds. Thankfully I didn’t have time to find the right fund and then held back as the market went freefall.

  I also signed my daughter (now four) up with Canadian Scholarship Trust Plan last year. With all the crazyness of the house purchase I haven’t been watching the investment too carefully, but I do remember getting the statement a few months ago and I did gain several hundred dollars with the benefit of the grant(s). As a rough estimate, I think I put in about $800 and the value is at about $1,200 including the grants. CSTP does seem to be quite transparent with their income statements.

  I’m not worried about performance. My daughter’s education MUST be guaranteed, period. No risk. My personal retirement is another story. I love the idea of playing the market with low cost index funds and will ‘gamble’ on the market rebound slowly with that. But I cannot fail my daughter with her education.

  My concern is that I’ve heard about problems getting money OUT of the plan. Does anyone have any experience or understanding on that? I had heard from a recent ‘financial investor’ that “hell will need to freeze over” before I’ll get my money out of it. That same person also miscalculated so many income, expense and retirement need numbers that while she was giving my wife the pitch I was browsing on the laptop barely paying attention and I still caught several mistakes.

  RESP performance aside (this has been a two-year debate with no one giving any ground from what I see), what are people’s opinion on getting their money out? My rep seemed quite good and was willing to listen before speaking, kept eye contact etc and I have a good feeling about it (yes, I realize he’s trained). I also realize he’s out for himself. So am I and I don’t expect him to not make a heafty commission off me because he surely doesn’t sell 12 plans a day. He may have to feed his family for a week on what he made from me. I have no problem with that and people need to really give their heads a shake when they complain commissions and fees. No one works for free. If you picked an investment option that doesn’t pay out as well as digging in your heels and doing it yourself. I’m sorry, but too bad, suck it up. There are many worse mistakes you could have made. The term ‘penny-wise, pound foolish’ comes to mind.

  For me, as long as I get my initial investment back guaranteed along with the interest earned and grants I’m happy. I pay $160/month and have statements saying at the end I am guaranteed my investment (about $18,000) plus my daughter will get about $22,000 if she meets her criteria of going to post secondary school (I’ll need to check the four-year vs two-year issue). Does anyone expect I’ll have problems with actually getting this assuming I file all the paperwork on time?

  It’s been a fun and informative read everyone, thanks.
  Steve

• 90 kruller // Jun 17, 2009 at 2:17 pm

  Hey Steve,

  I think what you are doing is FANTASTIC and I couldn’t agree with you more on your strategy.

  Instead of waiting for responses about somebody’s brother’s uncle who had a cousin that tried to get money out for their child….. why not…

  Write down all of the possible scenarios….. or whatif’s and have your rep. come back to your house to answer very specific questions. Send him/her the questions in advance (as most reps are trained on the up front selling and not the paying out side of things).

  You would want to ask about 4 things: your principle, gov’t grants, interest on gov’t grants, your investment interest, and membership fees.

  Possible scenarios include but are not limited to:

  1. You choosing to be paid out over 4 years and your daugher quitting during her first year and not returning.

  2. Daughter waiting until age 25 to go to school.

  3. You choosing to pe paid out over 4 years and your daughter switching programs after 2 years.

  4. You choosing to be paid out over 2 years and your daughter decides to go 4.

  5. Your daughter becoming a wealthy entrepreneur and deciding not to pursue post secondary at all.

  6. What you EXACTLY have to decide at age 18.

  7. Ask about the “conversion” at about 8 – 9 years old so you can pay your units off in full and be free to start another plan of any kind. He/she will be able to tell you when you would be able to do that approx.

  8. Ask exactly which circumstances payout would NOT occur.

  Plus whatever else you can come up with.

  Ask for the responses on paper as well “for customer service and referral” purposes.

  It would really be a worthwhile exercise instead of basing your research on “hearsay” and rumours. I think the rest of this string might be interested in the reps responses as well.

  Just an idea!!

• 91 Steve // Jun 17, 2009 at 3:20 pm

  Hi kruller,

  Thanks for the suggestions. I certainly will be speaking with my rep shortly, but things are too chaotic this month to sit down and properly prepare. I have a bit of background in journalism, so will definitely be going to the source.

  I do find that adding others’ experiences to the mix always gives fresh outlook, but I agree that it’s useless worrying about hearsay alone.

  Steve

• 92 Canadian Capitalist // Jun 17, 2009 at 4:00 pm

  @Steve: I’m not very clear on your math. Assuming your daughter is 4 and you are contributing $160 per month, you would have invested about $26K. Add in the CESG and you should have $32K plus whatever growth you get on the assets plus the money from attrition minus fees and expenses. It is hard to say how much you’ll have in the future because growth on assets depends on bond market yields which are at historic lows now & money from people dropping out. Both are unknown at this point.

• 93 Rachelle // Jun 19, 2009 at 10:24 am

  I did a lot of research to decide what to do about my sons RESP. A lot on this forum thanks for the info. I did talk to and meet reps from the group plans. It seemed to me that they rely a lot on people not getting their money back to increase the return which really did not seem right to me. I was also unhappy with their inability to answer my questions about interest, fees etc in a direct manner.

  I did not feel capable of directly investing myself because every stock I buy seems to go through the floor.

  In my case because of my income the government feels like I should receive about $500 per month in baby bonus and two other payments. I turn around and throught authorized payments put it right into the RESP.

  I decided to use Investors Group to hold my RESP I chose an equity mutual fund last spring which took a real tumble when the stock market tanked. At one time I was down 30% but now I am down about 6% which is not bad compared to how I am doing in my other stocks. I am confident that as time goes on I will see dome healthy returns.

  I am very happy with my rep I have no trouble getting my questions answered

  I am so grateful to live in a country that sends me free money that I can invest so they can give me more free money so that my son can be educated. He is not even 2 yet and has more money saved than me !!! In any case with this great way of saving for our kids education the only mistake we can make is not to participate.

• 94 Novice // Jun 19, 2009 at 10:30 am

  Rachelle — as a parent I understand the great pressure we all have to ’save for our kids education’ but your last line worries me that “he’s not 2 and has more money saved than you”. That’s alarming — there are no scholarships for retirement or getting laid off. Remember to save for your rainy day too Rachelle.

• 95 Rachelle // Jun 19, 2009 at 12:09 pm

  Do not be alarmed. There are a few things I did not mention as well. I am self employed so my income is lower than it would be if I was employed. Also my house is modest but entirely paid off so I have no rent to pay. I do save 10% of my gross income. I am only in my second year of my business which grows every year so I look forward to making more money every year.

  It just so happens that the stock picks I have made have dropped through the floor and his has done rather well considering what has happened to stocks in general. I mean I get 20% right off the block in his investment which I do not get in my own portfolio. It grows really fast. I also get two other subsidies for his investment that most people do not get.

  The way I figured it the government of Canada sends me this money to take care of him. It is his money not mine to spend on the need of the moment. For me it is 100% free money, I put it away and get more free money for his education.

  Another thing I want to add is that if ever I had to take the money out I could except for the part the government contributed with no fees or penalties. I even get the interest made on the government contributions.

  Most people are unwilling to do what we are doing. Last year I made 15000 after my business expenses. Yet I am saving for my son and myself as well. My husband and I make many sacrifices so that we can be better off. We drive an old car. We don’t even have cable. That alone saves over 800 per year. We have Internet and download our shows instead. When we go to the ROM we go on Wednesday between 4:30 and 5:30 when it’s free. We make very carefull choices. It is amazing what you can do when you decide to save.

  I forgot to mention that the baby bonus money I get also does not count towards my income. My husband takes care of the baby while I work. I do not pay taxes I get money back. I do not pay for daycare. I keep my expenses very low compared to most people I know. In our society there is a lot of emphasis on how much you make, what car you drive and how big your house is rather than how much money you have left over.

  For example my modest house it is a two bedroom with a two bedroom basement apartment. It was in horrible shape when I bought it. I paid about 150000. When I added up the payments and interest I paid 200000 in five years. If I had paid a conventional morgage of 25 years I would have paid $450000 for the exact same house. Now Because I worked so hard I have the freedom to start my own business taking a pay cut, raising my own child, and still saving a little bit. I have made lots of dough in my life but I ended up with nothing because I did not pay attention to how much I was spending. Now I am 100% the other direction concentrating on saving rather than how much I can make. So far I am more successful at saving and much more relaxed and happy.

• 96 4天搞定RESP：第3天，RESP怎麼買？ | Rich Settler // Jun 25, 2009 at 7:08 am

  [...] Capitalist有一篇 ”Is a Group RRSP Plan Right for You?” [...]

• 97 JS // Jun 27, 2009 at 10:10 am

  Has anybody studied RBC Target 20XX Education Fund ? (http://www.rbcam.com/solutions/mutual-fund-updates.html#target)
  I examined their 2010, 2015, 2020, and 2025. Seems it makes more sense as the Fund would make necessary adjustment when its target date (20XX) approches.
  Any input ?

• 98 Novice // Jul 3, 2009 at 4:34 pm

  JS — I looked at a similar fund, and the consensus from the smart people here is that overall, your better off just mimicing their performance and moving the funds yourself in a self directed account. You pay a hefty fee for the privilege of a target date fund, and especially as the kids get into years 14+ you’ll mostly be in bonds anyway so why pay 1.2% or whatever the MER is, if you can avoid it?

• 99 johnpill // Jul 17, 2009 at 9:21 am

  I’m just going through the process of getting money out of my RESP for my son (first year). I can’t believe how easy it is!! The Heritage rep is very helpful and I can’t believe the amount of money I have amassed over the 18 years. I have to admit I did not follow how well it was doing during most of it’s life but I am impressed.

  You smart people will probably say I could have done better elsewhere…. maybe I could have but I am happy with my return. I don’t know how to put it in a percentage return but my RRSP didn’t fair even close to what I earned in the RESP.

  So thanks everyone…. your insights have been enlightening to say the least.

• 100 Novice // Jul 17, 2009 at 9:39 am

  John, congratulations on being successful with Heritage. I think the main point that the posters on this blog make is not that it’s a bad plan per se (though I don’t think it’s ideal) I think it’s more that many people don’t read the fine print and miss a payment etc in those 18 long years and then find themselves in trouble later. One way to show the return is to ask your rep to show you two numbers — how much money you’ve put in during the past 18 years, and how much it grew to. That’s not ideal because it doesn’t take into account inflation, etc but it gives a starting point.

  One thing that might be helpful is to actually document the process — do you pay the tuition first, submit a claim, etc?

• 101 Ravonar // Jul 17, 2009 at 3:55 pm

  I am a lawyer by profession dealing in the area of corporate commercial and real estate. After taking a pounding in the stock market, which has recently recovered after 10 years of steady losses, and ridiculously low GIC rates, my wife and I went with Heritage.

  We make the maximum contribution every month, get back the membership fees if the plan is paid out over a minimum of 4 years and rest comfortably knowing that the plan averages about 6% per year. Even if it only averaged 1% per year; our level of risk is such that we would rather earn 1% than lose 1%. In addition, we life insured the payments notwithstanding that this is very expensive if you look at the cost per thousand dollar of insurance. However, it only cost $10.00 per month as I wanted to compartalize everything as my wife is a stay-at-home mom. This way my wife has a house with mortgage life insurance (which is also way to expensive – but again “compartamentalized”); a very good life insurance policy; and an RESP that is life insured.

  If our son doesn’t go to university for four years and I lose the membership fees – oh well, that money was for him and not me; and if he chooses to lose it, so be it, but at least his four years is covered if he chooses to go. When I went, I maxed out my student loans and worked for the rest. I would have been happy to have just the principal that I am putting away for him, let alone the $7200.00 from the feds and $800.00 from the gov’t of alberta plus any interest it might generate.

  I don’t really know if Heritage is good or poor. We own a fair bit of real estate and that has averaged quite well over the last decade. Even in a recession I can still plant a potatoe on it or raise some goats on our property.

  I became fairly convinced that over the last few years that the stock market/ mutual funds was simply a game for overgrown teenagers (calling themselves C.E.O.’s) to negotiate massive severance packages while working on the 26th floor on baystreet and gambling with investors money without any respect for the hard work it took to earn it and then bailing when the income couldn’t cover the expenses of those fancy offices.

  I think I’ll stick with my real estate and my Heritage Plan; at least no growth is better than negative growth.
  My daddy used to say “If you have a plan you have everything and if you don’t have a plan you have nothing ,so therefore any plan is better than no plan”; he also said “if you fail to plan, you plan to fail” : these may be quotes from somewhere else, I don’t know but they have served me well over the years.

  Just my two cents worth.

  Cheers

• 102 whoyou // Jul 27, 2009 at 5:34 pm

  Excellent debate from both Group and Self-direct fans. I have a group plan with CST for my two kids. My son still have 6 remaining annual $2000 payments left. I will leave it with CST because 3200 interest income plus 3000 enrollment fee, total $6200 will be lost if I transfer it to self-direct RESP today. However I am thinking to do something for my 8 years daughter’s RESP with CST which I contribute $1050 annually only since 2002 as I bought a house in 2001 so budget is limited:

  Contributions Net of Plan Fees $5,308
  Canada Education Savings Grant $1,470
  Interest Income $950
  Enrollment Fees $2,000

  Current Balance = $9,728
  —————————————————————————————-
  Details of Plan
  Plan Started 2002
  Contribution Amount $1,050.00
  Your Contributions are Made Annual
  Contributions Remaining 10
  Number of Units 10.000
  =============================================

  Option one:
  Transfer it to TD eFund RESP, I will loose $2950 (enrollment fee $2000 + Interest Income $950), and start a balance at $6778 at TD, then continue to contribute $1050 annually in next 10 years. I am wondering if TD account could catch it up with CST account when my daughter is 18, say CST return is 4%, TD eFund return is 8%, I know the risk, it is not guaranteed, but…let’s say 10 years long run return and I am a lucky father. I know enrollment fee is not earning any income in CST.

  Option two:
  As mentioned in some posts, do a “conversion” and park the current balance in CST, and open a new TD-eFund RESP. Can somebody explain how to do a “conversion” as I cannot find it on CST website?

  Option three:
  Leave it with CST and pay 10 remaining contributions until 2018.

  I am not good at math, but as good parent as all of you. we do this for our kids to pursue their future without too much financial pressure when they reach 18.

  If you were me, which option you think is the good one.

  Much appreciated,

• 103 Traciatim // Jul 27, 2009 at 7:38 pm

  Hey Whoyou, I answered over at million dollar journey, but here is my opinion pasted here just in case you miss it over there.

  now that you are already in CST the best course of action is most likely to continue. It’s very unlikely that if you forfeit your enrollment fees that you would be able to recover in 10 years.

  If you have basically 10000 earning about 4% in safe investments now, and you instead want to forfeit 3000 (7000 left), then how much do you need to earn to ‘catch up’? It ends up being about 7.75%-8% or so. That would involve a huge amount of risk that late in the game, and what would happen if a year or two before she goes to school we have another 2008 in the stock market?

  I’m not usually one to recommend CST, but in this case I just don’t think it makes too much sense to jump ship now that you are this far in.

  My plan converted to an individual plan in CST just before I collapsed it. As far as I was aware, unless you pay out the units amount owning then you still use your enrollment fees, but I’m not certain on that one since my plan was being collapsed for other financial reasons. You may want to give their customer service line a call and ask how it works.

  Keep in mind you’ve done a great thing for your daughter giving her a head start that not a lot of other children will have. It’s a great gift that I’m sure she will appreciate.

• 104 Canadian Capitalist // Jul 28, 2009 at 2:17 pm

  Thanks for the info you have provided. I’m very surprised that interest income (on contributions less enrollment fees plus CESG) is very low at around 4%. The total return on contributions is very similar to what an investor would have achieved on their own by simply investing in bonds. Of course, DIY bond investors would have more because they are earning interest on the enrollment fees as well.

  If you transfer out of CST now, the hurdle to overcome lost enrollment fees plus interest income sounds pretty high, especially for RESP accounts that will become quite conservative over time. That’s the trouble with stocks — you never know what you are going to get next, especially over the short term.

• 105 whoyou // Jul 28, 2009 at 5:23 pm

  Thank you very much for your info, Traciatim and CC.

  Actually, CST real average return is about 3.2%, which is far below 8.5% they use to calculate “Illustrated Maturity Value” of my 2008 statement. Buying bond with high MER, I am not optimistic that CST can provide return they projected to parents. Anyway, I think I have to stick with CST.

  Great forum, CC.

  Thank you again,

• 106 kruller // Sep 11, 2009 at 2:14 pm

  Hey whoyou.

  If you do a conversion, you can pay up your existing units in full. That plan is then done and paid up. You don’t lose any membership fees, or anything else for that matter.

  CST reps get a report of people who are eligible to convert. Usually between seven and eight years old (assuming they have been contributing since birth). They like to “convert” because then the hope is that you will contribute to another CST plan purchasing more units and earning the rep more commission.

  I would convert and then go with a TD mutual index fund just for diversification.

  Also that “illustrated maturity value” includes estimated enhancements.

  Good luck.

  PS…. Ravonar…… GREAT POST!!!

• 107 whoyou // Sep 12, 2009 at 10:15 pm

  Hi kruller,

  You mentioned that “If you do a conversion, you can pay up your existing units in full. That plan is then done and paid up.” What does “pay up your existing units in full” mean? Should I pay the total amount for the remaining contribution, or just stop paying and it can be converted? Could you give me an example how it works?

  Thanks.

• 108 kruller // Sep 15, 2009 at 11:31 am

  to whoyou:

  To pay up your RESP simply means the following….

  If you are currently contributing annually (for example), you are making payments each year for 18 years (assuming you started at newborn).

  You will want to convert to a “5 year annual plan”. A five year annual plan is a plan that you make annual payments to for 5 years only to purchase a set number of units.

  By the time your child is between 7 and 8, on average, you will have enough in your annual plan to convert it to the equivalent number of units (as if you intended to do the 5 year annual plan all along).

  The plan is then paid up with the set number of units purchased and no further payments are required.

  Your rep will likely be able to explain it better than I am but I hope you get the idea.

  The reason it takes between 7 and 8 years is obviously because the 5 year deal would cost a lot more annually to accumulate the same number of units that you are based on 18 annual payments. It take about 8 years of your annual plan to equal enough principal and interest to equal the equivalent number of units in a 5 year annual plan. There may be a small interest adjustment that you will have to make to make up any difference but it is can be negligible if the the timing is right.

  Contact your rep and ask when the ideal time would be.

• 109 whoyou // Sep 15, 2009 at 11:50 am

  Much appreciated, Kruller.

• 110 gene // Sep 18, 2009 at 8:46 am

  be carefull in signing up in the canadian scholarship trust plan i did it and when it was time to put my child to school guess what because the head of the school is called a principal they refuse to pay the money out to my child. Make sure when you do this you have research all aspects of what you are signing your money up for for 19 years

• 111 kruller // Sep 21, 2009 at 8:51 am

  Hey Gene,

  An accredited institution is the same for ANY RESP. The Government classifies institutions as to whether they are eligible for RESP payouts.

  While not 100% sure, I don’t think that CST can veto this list. Your beef, I believe, is with the gov’t.

• 112 Al // Dec 2, 2009 at 12:05 am

  Thank you for a very informative thread.

  I have subscribed to a group plan early this year, and already paid $1200. Does it make sense to switch to a self directed RESP with a bank (like TD) at this point?

  Second question, with an enrolment fee close to $5000. Will I still be owing 3800 to the group plan provider if I transfer out of the group plan?

  Appreciating your answers and thanks in advance.

• 113 Mark // Dec 3, 2009 at 10:25 pm

  WOW. Where to start…….
  First of all, there are some things that you folks need to know.

  The Canadian Scholarship Trust (CST), USC, and Universitas have all started and discontinued multiple plans over the years, instead of updating their current one. Each of these plans has different rules that govern them. This is one of the reasons that this discussion board doesn’t work well, and why there is such confusion about scholarship plans in general. Someone might post “xxx” and another person will say “xxx is not true of the CST/USC plan that I have”. They may both be right, so unless they are talking about the same company and plan, there will be confusion. On that note, talking about what children are presently experiencing as they go to school is not necessarily indicative of the plans that are currently being marketed. (Keep in mind that I don’t prefer CST, USC or Universitas, but just want this simple fact known)

  So to the post that Kruller made on Sept 21, 2009 – the CST plan which that family has probably won’t pay unless it is a 4 year University program. (and that can be CST’s definition, not the governments) There may be other restrictions as well. (I am guessing a bit, as I don’t have the prospectus for that particular plan in front of me.)

  To be quite clear, when it comes to investments, it is ‘buyer beware’. Anybody can go on this site, and post whatever they want. It can become a shouting match, but it is hard for the average person to discern the truth. I do work for a scholarship plan company, and I do know a fair bit about all of them. (Not everyone in the Scholarship plan industry goes out of their way to research this, only learning enough to sling a bit of mud around, and what they sling usually isn’t true.) It you want, you can email me questions to canadianfinancialwizard-at-gmail-dot-com although I would prefer to answer them here, as some people may have the exact same question.

  In regards to ‘buyer beware’ I can give an example. I had a client who had invested with us for 3 years. They then had a financial advisor (mutual fund sales representative (MFSR)) tell them that if their child didn’t go to school, they would lose their money. This is absolutely untrue. I never talked to the MFSR, so I don’t know if he actually believed it (which, with all the misinformation out there, he actually might have) or if he just uses it to get sales. Either way, he was completely wrong, the people made investment decisions (and from most accounts, the people here would say that it was a bad decision) based on this wrong information, and also lost money. Sadly, they are completely happy with this MFSR, and might die not knowing how wrong and bad the advice was. (As well, they will probably spread the same misinformation to others.) The MFSR might not care, because he made his commission. Again, buyer beware.

  When it comes to any Scholarship Plan, you should read the prospectus. That will tell you more than the people on this board probably will. They are all available at http://www.sedar.com so there is no excuse for people to have wrong information.

  One thing I will mention is that the responsibility is on you to understand the prospectus and ask the questions you need to. I will help with providing a couple.
  1. If the child chooses a scholarship option, will they receive all of the interest earned on their money, the entire grant the government contributed for their child, and all of the interest on said grants? Please word it this way, as this cannot be dodged. You will find that with CST, USC, and Universitas the answer is no.
  2. Also, it is up to you to read and understand all of the fees. Some claim that theirs are lower than others, but don’t show comparative numbers, relying on the fact that people will not research themselves. Talking about Universitas, I could not find in their perspective where it states that the membership fees are guaranteed to be returned. (could be true, I just never found it) Also, while Universitas claims lower membership fees (I don’t live in Quebec, so don’t want to spend the time to research it) their ongoing maintenance fees are substantially higher. I haven’t done the calculations, but I would guess that it would more than make up for the lower membership fees. (and they won’t ever return the maintenance fees – saying lower membership fees is great for sales, having higher ongoing fees makes up for it, and then they return less when it comes to memberhip fee returns – brilliant – lol)
  3. The most basic question a prospective subscriber should be looking at is the completion rates. This is something that the Securities Commission has recently required the plans to disclose, and is the best gauge of how flexible a plan truly is. What these (and they are in each companies prospectus) show are the percentage of students who are eligible to receive scholarships, and actually do. You will find that some of these plans have completion rates that are around 50%. That means that around 50% of the children receive all the money that they were entitled to. This is how some of them can show really high ‘scholarship payouts’, while earning much lower returns on the actual investments. (Good for sales, bad for children later on. Why can’t these children get their money?) I consider this the silver bullet, when it comes to comparing all of the plans out there. There is one plan that has an incredibly high completion rate – I leave it up to you to do the work and find it. Don’t get taken in by the smoke and mirrors.

  To Al, Dec. 2, Switching is up to you, but I would do a lot of research. Keep in mind you will lose enrollment fees, grants, and all interest. If you do cancel, you will not have any obligation to pay the remaining membership fees. There is one plan out there that I would run screaming from, but I obviously will not post that here.

  I could go on for days, but I have a life. Good luck to all, whatever you do, and do it with knowledge, and be comfortable with your decision.

  Cheers,

  Mark

• 114 Mark // Dec 10, 2009 at 11:22 pm

  To my previous post, point number one. It should have said:
  1. If the child chooses a scholarship option, and only goes for two or three years of schooling, will they receive all of the interest earned on their money, the entire grant the government contributed for their child, and all of the interest on said grants?

• 115 Rhonda // Dec 11, 2009 at 1:54 pm

  I can only speak for Universitas and the answer to those questions is yes.

• 116 Mark // Dec 11, 2009 at 7:37 pm

  @Rhonda,

  To which questions are you referring to? If it is the question of whether or not a child will receive all of their money, in the Scholarship Option, under the Reflex and Universitas plans, if they go for two or three years of schooling, I am under the assumption that the answer is no. I am under the assumption that a child needs to qualify and progress 4 years to receive all EAP’s. I know that Quebec schooling is different that the rest of Canada, but this leads me to believe three years: (all quotes such as these * are taken directly from the Universitas prospectus.)

  *1st Scholarship: The Foundation awards the first Scholarship when
  the Qualified Beneficiary has obtained 12 credits at
  university.
  2nd Scholarship: The Foundation awards the second Scholarship when
  the Qualified Beneficiary has obtained 36 credits at
  university.
  3rd Scholarship: The Foundation awards the third Scholarship when
  the Qualified Beneficiary has obtained 60 credits at
  university.

  And if not in Quebec:

  *1st Scholarship: The Foundation awards the first Scholarship when
  the Qualified Beneficiary has completed his first year
  at university.
  2nd Scholarship: The Foundation awards the second Scholarship when
  the Qualified Beneficiary has completed his second
  year at university.
  3rd Scholarship: The Foundation awards the third Scholarship when
  the Qualified Beneficiary

  Why would you be on this board posting that a child will get all of their money if they only go for two years, when your prospectus says otherwise?

  As to the fees, it wasn’t a yes no answer. The Management fee of 1.19%, combined with the other fees and charges (1.3% ?) is WAY above what the other funds charge. I can’t see how you can claim Universitas’ fees are lower.

  Another question I would have of a Universitas rep: are your investments made according to National Policy 15? Can the investments that Universitas makes with my money lose value? Is my principle at risk? Are they exposed to equities, and if so, how? I state this because most parents want their child’s’ savings to be principal protected, and I am not sure that Universitas’ investments are.

  Forgive my not being up to date with everything about Universitas, as I am not in Quebec. As well, Universitas has started and stopped a few plans in the past, have three that they are currently marketing, so again, please forgive my confusion. (As I have stated previously, this is one of the reasons there is such confusion about Group plans, as some companies have multiple plans. It is understandable that the public cannot make heads or tails of how the plan works.)

  Just for yuks, I decided to take a look at the Universitas prospectus. I have to say, even I am a little confused as to why there are two different group plans. This alone makes me, as an investor, a little nervous. While I was reading, trying to discern some thinks, I came across a few interesting tidbits. First of all, if a child decides that they don’t want to go for 4 years of schooling, and transfers from the Universitas plan to the individual plan, here is what happens:

  *It is possible to transfer to the
  INDIVIDUAL plan at any time.
  However, only the income accumulated
  since the Maturity
  Date, if any, will be transferred,
  as well as the income accrued
  on the CESG, the CLB and the
  QESI, if any

  This alone would make me never want to invest in this program.

  And then there is this:

  *It is possible to transfer from the UNIVERSITAS plan to the REFLEX
  plan (and vice versa) within twelve (12) months of the coming into
  force of the original plan, provided the Beneficiary has not reached
  the age of 16. However, income accumulated in the original plan is
  not transferred, except for the Income from the CESG, CLB and QESI,
  where applicable

  In case it wasn’t clear enough:

  *When the transfer is made from a UNIVERSITAS or REFLEX
  Group Plan to another plan of the Foundation or another
  institution, part of the Accumulated Income accrued on
  the Savings or the total income, as the case may be, will
  not be transferred.

  And I pretty much stopped reading when I got to page 15, which tells me how the ‘guaranteed return of membership fees’ are funded:

  ** Membership Fees are refunded to the Subscriber at the Maturity Date from the income derived from the Subscribers’ Account in the UNIVERSITAS
  group plan and in the REFLEX group plan.

  So Universitas guarantees that they will take money from the subscribers’ income, and give it to the subscriber, calling it a return of membership fees. WOW, this is almost as sneaky as the insurance product that pretends to be a group plan. Great for sales, bad for customers. Gotta read the small print.

  So if this fund is invested just like a bank, and the membership fees are returned from my own income, why wouldn’t I just go to the bank, and not pay any membership fees? The folks who are comparing the stuff they do at the bank to this would be quite accurate.

  So basically, I am only into page 15 of the prospectus, and already I don’t like it. I don’t even understand the differences between the Universitas and the Reflex plans – if one is better than the other – get rid of the worse one. I am just guessing, but I would imagine that having two different plans allows the sales reps (not the moral ones) to promote the best of both, and let the clients assume that by being in one, they get the best of both. I am assuming that if I read more, I would find other things like this, but I won’t waste my time, nor force people who are looking for a good product to read more about this one.

  I understand group plans quite well, and the Universitas prospectus I find a bit confusing. Each plan has different schools that they allow children to go to? Why? And parents have to decide that when their child is a newborn? Sorry, I am guessing, but I bet that if you folks weren’t based in Quebec, you wouldn’t sell much. You probably play up the Quebec Head Office thing a lot, while, imho, your plan is really not flexible. I have to say that, as a parent, I am glad I am not in Quebec, as I might have felt some ‘national pride’ reason to buy into this product. As a rep, I wish I was in Quebec, because it would be easy to compete against plans like this.

  Other questions that come up:
  Why do they use 9% as an interest adjustment amount?
  Why are the returns in the prospectus, which is on Universitas’ website, only current to December 31, 2007. That is almost two years old. Are they hiding something?
  Is the life insurance optional? What if I don’t want it – do I still have to pay it?
  I didn’t even get to the completion rates, but are they above the industry average, or below, and why?

  I am done. I can only read this so much, as more questions keep jumping into my head.

  I would like to say that I try not to sling mud when I talk about Scholarship plans, but what I have read so far does not have me all that impressed. I see some talking points that are probably great for sales, but really nothing to make me want to jump into this product. I might be wrong on any one of these points. If I am, please reply and post the page number of the Universitas prospectus where I can find the correct information. This will improve my understanding of your product, as well as anyone here who reads this.

  Cheers,

  Mark

• 117 Mark // Dec 14, 2009 at 6:07 pm

  “I know that Quebec schooling is different that the rest of Canada, but this leads me to believe three years:”

  Should have read:

  I know that Quebec schooling is different than the rest of Canada, but this leads me to believe FOUR years:

• 118 Geoff // Dec 15, 2009 at 10:41 am

  Mark – if you can, please respond to my comments on

  http://www.milliondollarjourney.com/registered-education-savings-plan-resp.htm (At bottom of comments)

  (And for anyone reading, that’s also a really good source of comments/info on resps that’s a good source of info, like the always reliable canadiancapitalist.com)

• 119 mulletman // Dec 15, 2009 at 11:10 am

  Hey Mark,

  I like what you are saying. I agree with the majority of it as well. I did a lot of research before choosing a group plan for my kids as well.

  Can you tell me one thing though? Does a bank require “successful completion” of a university/college year before they release money for the next year??

  Just curious.

• 120 Canadian Capitalist // Dec 15, 2009 at 11:39 am

  @mulletman: To my knowledge, bank RESP withdrawal rules are the same as that set by the Government. These rules are available on the HRDC website:

  http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/pymnts/p-eng.html

  @Geoff: I find Mark’s comments to have inconsistencies as well. For instance, he states Group RESPs have fees (yes, they do) but also says that they can make up these fees and more through active management (not true according to their own reporting). I do agree that transparency in Group RESPs is improving but these plans are still inflexible and have a high cost structure (especially if a subscriber is one of the drop outs).

• 121 mulletman // Dec 15, 2009 at 12:40 pm

  Thanks CC.

  I have read the site but am still confused with the following…..

  In a group plan if a student elects to take their EAP’s out over the course of 3 years they must “successfully complete” year 1 before they can access their year 2 EAP…. and so on.

  If a student fails the first year, they would not be eligible for second year EAP’s.

  Is this the same for bank plans??

• 122 Canadian Capitalist // Dec 15, 2009 at 1:08 pm

  @mulletman: I’m not sure what you mean by “fails the first year”. Do you mean fails some academic courses and have to retake it? The Government rules simply have to do with enrolment, not how successful a student is in his education.

• 123 Geoff // Dec 15, 2009 at 2:18 pm

  @ CC — do you know literally the steps to get the funds out of a td efunds resp?

  I’ve been thinking about this, but can’t find anything on it.

  For instance, do I have to show proof of enrollment? If that’s true, then I probably can’t get that until he enrolls, but to get that I have to pay the tuition, but to pay the tuition I need the resp…..

  So I just can’t find something like: Step 1. Step 2. Step 3, etc.

  I think mulletman (great name btw) question might be answered by the answer to “can my son withdraw his entire resp account the first year?”

• 124 Canadian Capitalist // Dec 15, 2009 at 2:56 pm

  @Geoff: I’ll try and find out. Stay tuned…

• 125 mulletman // Dec 18, 2009 at 3:54 pm

  I guess I have to clarify my question.

  With group plans… when your child reaches age 18, you have to make a decision as to how you want to withdraw your funds. All right away vs. EAP’s over 4 years. If you chose the latter, the only way to receive EAP’s in 3rd and 4th year is to have “successfully completing” years 1 and 2. (from my understanding).

  Example….. You elect to receive your EAP’s over 4 years. You go for 2 and flunk out of your third year of economics.

  You start another first year program(in philosophy) because you flunked out of year 3 of economics. It is my understanding that you cannot get the 4th installment of your group plan EAP.

  IS THIS TRUE OF A BANK PLAN?????

  If Mark and Geoff can stop bickering long enough (just kidding) maybe one of them knows the answer.

• 126 Geoff // Dec 18, 2009 at 4:34 pm

  I’ve called TD and this is what they said:

  In the first 13 weeks of enrollment at a post-secondary education, I can only withdraw $5000 of the government contributions, and as much as I want of ‘my’ contributions. After week 13, I can withdraw as much as I want. I’m not sure of reasons why (protect the government’s interest, I’d imagine).

  So what happens if child enrolls, and flunks out? According to the rules above, they would have to enroll someplace else before I could pull it out again, it’s not forfeited or anything. However, it’s worthwhile to note that we’re talking at least for me 15 years in the future, and the rules might change.

• 127 Mark // Dec 18, 2009 at 4:53 pm

  Long answer to quick questions:

  @Geoff Dec 15 – done and done.

  @ mulletman Dec 15

  The bank, for it’s own purposes, ‘requires’nothing. They are required to follow the RESP rules set out by the government. The government has some rules about when and how the RESP money can be accessed. In order to draw it all out, a minimum 13 week, qualifying program must be taken. (and it probably won’t be able to all be pulled out at once) If not, limits are imposed. The government makes the laws, and it is the promoter’s responsibility to ensure that everything is being done according to those laws. The reason that it took so long for me to respond to this post, is that I called CRA, and they didn’t call back until today. The fellow on the phone was very clear when it comes to what is required of a student. The law states “that requires a student to spend no less than 10 hours per week on courses or work in the program”. The Government makes the law, and they require the promoters to ensure that it is followed. If the government feels that a promoter is not ensureing that the law is being followed, and the tax shelter is being used in a way that conrtavenes the law, the promoter could lose their tax staus, as far as having RESP’s.

  The law states that the student is required to spend no less than 10 hours per week…. There are two ways that a promoter can ensure that the student is actually attending as required. They can ask for attendance records (This would be difficult for correspondence courses?), or they can ask for proof that the child has passed the course. Either one would satisfy the government in that the promoter proved that the child had attended as required. Each promoter had to come up with a system they could put into place to ensure that they were complying with the law. (I am not convinced that the banks have done this as yet, but I feel they will have to in the future.) Some have rules that the course must be passed, or they won’t pay any money the next year – others just won’t pay it out for the same course (same level) two years in a row. This is a very important factor to research.

  The RESP rules have only been on the books like this since 1998, and banks have only been doing Education Savings Plans since that time. How this will be interpreted in the future is anyones guess, but the law is clear. If the government thinks that a promoter is (knowingly, or even by neglect) allowing beneficiaries to enroll in a course (and not attend) for the sole purpose of pulling money out of the tax shelter in their hands (as opposed to their parents), the promoter could very well lose their status to hold RESP’s. What would happen to the RESP’s that are being held by that institution if that were to happen, I can only speculate. (I would hope that the families could just transfer them.)

  Scholarship plans are a one product company. They cannot afford to lose their ability to market RESP’s. To ensure that they are in compliance with the laws, and that the students are attending as required, they have all put into place a system to protect themselves, and their subscribers. To show again that there are ‘sales techniques’ that you should watch out for, I will give an example. There is a Scholarship plan that allows a minimum of 3 weeks per year (after the first year of 13 weeks are taken) to pull out a scholarship payment each year. Some of the sales people promote that a child really doesn’t have to attend. They promote the idea that a child can just enroll, and not attend. They even suggest the child can do this for the whole 4 years (not go to school at all), all while pulling the money out of the tax shelter. You can imagine that it doesn’t state this in their prospectus, and that in 18 years, the family will probaly be told, “No, that is not the case. The law requires that we ensure that your child is attending. This is how we do it.” Again, good for sales, not good for the people investing. If anyone, whether it be a Scholarship plan sales person, or a bank representaitve, or just a person you talk to tells you a trick to circumvent the law, keep in mind that it is probaly not an idea that is supported by the government, and I would imagine in 18 years that the government will find a way to prevent it.

  @CC Dec 15

  What parts of my comments are not true “according to their own reporting”? I can’t really respond to that, as it is quite vague. If you wouldn’t mind, please provide a few more details.

  Cheers,

  Mark

• 128 Mark // Dec 18, 2009 at 5:14 pm

  @ Mulletman Dec 18

  Funny – I like you already.

  First of all, I will comment again that you cannot lump all group plans together, as they have different options, and therefore different flexibility.

  “All right away vs. EAP’s over 4 years.” Not exactly accurate. It should read: “Just like a bank plan (with no benefits from the non-profit foundation), or their Scholarship option (which is different for each promoter. Might not require four years.)”

  “If you chose the latter, the only way to receive EAP’s in 3rd and 4th year is to have “successfully completing” years 1 and 2. (from my understanding).” This may very well be true, depending on which Scholarship Plan you decide to go with. Some offer much more flexibility.

  “Example….. You elect to receive your EAP’s over 4 years. You go for 2 and flunk out of your third year of economics.
  You start another first year program(in philosophy) because you flunked out of year 3 of economics. It is my understanding that you cannot get the 4th installment of your group plan EAP.” This also may be true of the Scholarship plan you are in, and if so, I feel bad for you and hope that doesn’t happen to your child. Again, with others, that is not the case.

  “IS THIS TRUE OF A BANK PLAN?????” – I hope my post above this one can better answer that. I wanted to answer your question earlier, but again I wanted to clarify some things with CRA. What I would state as a generalization, if it doesn’t look like the child is attempting to withdrawal money out, not for the purpose of schooling, they should be fine. In the future, I suspect the banks will have to have a system (and being as they are large, they want to minimize the paperwork, I hope that computers can help with it) to prevent students from abusing the tax shelter. Because the RESP program as it stands right now only started in 1998, I predict in the future this will become a bigger issue than it is right now.

  Hope this helps,

  Cheers,

  Mark

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