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moneysense.ca, 26/03/07
Is a Group RESP Plan Right for You?
Returns: You should keep in mind that scholarship plans are invested in low-risk and low-return assets like T-bills, bonds and mortgages. The return you should expect from scholarship plans will be similar to what you can get from bonds (around 5% currently) plus the earnings on capital of members who dropped out less plan expenses. It is extremely difficult to say how much the fees add up to and since it is not obvious, you have to assume that you will be left with more if you invest on your own. Also, note that fully one-third of returns are “discretionary payments” and around 12% was due to “attrition”.
Are there better options available?
In my opinion, you should carefully consider the alternatives and decide for yourself if they are better. I have a RESP set up for our kids with TD eFunds. There is no RESP administration fee and I am able to invest in one of the lowest cost mutual funds available. It gives me flexibility (I can decide to contribute or skip entirely. Remember, most people have other priorities like saving for a retirement and paying off their mortgage) and control (my kids are very young, so the portfolio is heavily tilted toward equities. If your kids have five years or so till university, you should be invested in bonds or GICs). In contrast, you have to keep contributing to a scholarship fund or you lose your membership. You also don’t have control over where the money is invested. It makes no sense that an infant’s college fund should be invested entirely in bonds.
Is there any drawback to self-directed RESPs?
Yes there is. Though it should take you an hour or so to set up and fifteen minutes every year to monitor, it is entirely your responsibility to do so. You should also be disciplined enough to take appropriate risks. You should not invest 100% of a 15-year old’s college savings in the latest investment fad.
What should I do if I have already enrolled in a Group RESP?
It makes no sense to stop contributing to a scholarship plan because only your contributions less fees are returned to you. You lose the earnings on your contributions as well as the matching grants provided by the government. The longer you have been contributing to a plan, the more important it is that you continue to do so.
Related: MoneySense article on RESPs; Comments section of Million Dollar Journey’s post on RESPs.
moneysense.ca, 26/03/07
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
I think these plans might be useful for people who have absolutely no financial discipline at all.
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.
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.
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)
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
Big Cajun: Yes. You have to contribute $2,500 to get the $500 grant. Remember though the maximum grant stays at $7,200.
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.
P.S. Jon . . . I wonder if my 280 bucks paid for that photo-postcard you saw
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.
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
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.
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.
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?
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
Your website is why the vast majority of people believe very little of what they see on the web.
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.
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!
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?
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.
Sorry, in TD year one it should read:
“$1440 split in to 5 funds . . .”
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.
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.
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
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.
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!!
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.
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
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.
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??
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.
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??
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.
CC: Could you please expand on the attrition concept. I’m not familiar with that.
You parenthesized “discretionary”. What do you gather from that?
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.
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.
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?
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?
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.
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!
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!!
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.
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?
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?
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.
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.
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.
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.
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.
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!!
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?
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.
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.
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)
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.
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.
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.
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
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.”
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.
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
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.
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.
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.
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.
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!!!!
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.
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.
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!!!
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.
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.
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.
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.
Hey Traciatim,
Out of curiosity, why didn’t you “convert” to the 5 year annual plan?
It would have saved you a bundle.
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.
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.
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!!!
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.
Heritage RESP PLAN IS THE BEST STRONGLY REKOMEND
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!
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.
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.
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.
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.
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%?
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.
Rhonda – your link above doesn’t work…..not the best way to prove your argument but I’ll assume technical glitch
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.
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
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!!
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
@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.
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.
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.
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.
[...] Capitalist有一篇 ”Is a Group RRSP Plan Right for You?” [...]
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 ?
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?
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.
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?
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
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,
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.
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.
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,
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!!!
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.
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.
Much appreciated, Kruller.
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
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.
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.
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
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?
I can only speak for Universitas and the answer to those questions is yes.
@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
“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:
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)
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.
@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).
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??
@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.
@ 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?”
@Geoff: I’ll try and find out. Stay tuned…
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.
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.
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
@ 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
Mark, for someone not living in Quebec, you seem to pretend you know a lot about the Universitas Scholarship Plan. Anyone can get on this site and mouth off, as if they are experts on all RESP plans. Most people would read your comments and believe every word you say, since it sound believable, but completely false. I believe you to be a competitor who simply doesn’t know or like the Universitas plan due to the success and reputation they have built. The success of a plan can be seen from the current value of a basic unit. Compare the value of CST, USC Hertiage basic unit to that of Universitas, and you will see that we certainly do pay out higher scholarships. As well, your information regarding the payout is completely false, you omitted some very important information found in the propectus which can be found on Sedar as well as the web-site of each company mentionned. For someone who pretends not to sling mud, you certainly have done a good job. Most of your comments don’t even dignify a response. If I had time to waste, like your obviously do, I would take the time. Should I have a day to waste, I might just give your readers the correct information.
Cory,
Did you even read the whole post? I said that I was unfamiliar with the Universitas plan. I asked a lot of questions, that no one has answered. I also posted all of the information directly form the Universitas prospectus. This is what really floors me. A universitas rep comes on here and brags that they are the only company that quarantees the return of membership fees. Universitas ‘guarantees’ that they will return the memberhsip fee – out of the subscribers intrest, and you are mad at me for posting the truth?!!! Don’t you think that deserves to be said?
I don’t live in Quebec, but anyone can read a prospectus. I don’t claim to be an expert on the Universitas plan, but I am quite familiar with a Scholarship plan prospectus. I didn’t read half way through Universitas’, and even by then, I felt that it was incredibly hard to understand, and I ran into tones of stuff I found questionable. That is what I posted, and to be fair, I quoted directly from the prospectus. I did a lot of asking and assuming, so feel free to make any corrections.
What did I say that was false?
Scholarship payouts are nice, and if that was the only thing that separates all of the plans, CET would win, not Universitas. The fact is, if the scholarships are higher because a lower percentage of children are able to qualify for them, that is a negative, not a positive. I don’t want to find out down the road that I didn’t jump through the right hoop, or go to the right school, so now my child can’t access the scholarships. That is why I read the prospectuses.
I do apologize that I was harsh on Universitas, but to be quite blunt, after the reading of their prospectus that I did, I have to say that I have a very low opinion of their plan. Feel free, (using facts, not trying to use emotions) to change my mind. I would actually prefer to have a higher opinion of them, but to be honest, I don’t live in Quebec, and so I don’t really care either way. I do, however, think parents should know in advance what they are getting into.
What I deplore most about these blogs is the fact that people actually base their decision whether or not to look at a specific program on what they have read on this blog. In fact, that very thing happened this week to one of our reps. A customer read your comment about Universitas, and cancelled his appointment. His decision certainly was not based on the facts. For that specific reason, Mark, I am more than happy to respond to your question about Universitas. First of all, we have 3 plans that we offer people, Universitas, ReFlex and an Individual Plan. The reason we have 3 plans, is very simple, we offer people what they want and need. 45 years ago when Universitas was founded by Jean Marchand, it was simply a saving club for parents and students to save for their University education. They later incorporated the Universitas Plan which has served us well, and has an excellent track record. This plan has helped thousands of young people get different types of degrees. I personally know, a doctor, accountant, criminologist, and an engineer that were very thankful their parents had the discipline and foresight to save for their education. The Universitas plan is more restrictive but has a higher return, versus the ReFlex plan which is much more Flexiblity with slightly less return. When meeting with parents, we do a detailed client profile and based on the parents needs, the parents and not the reps make the decision. Both plans are shown and explained in detail to the parents and based on that information, they make their decision. Contrary to what you cut and pasted from our prospectus, the Universitas Plan also pays for Technical Cegep as well as University along with the another option of using the government grants before the scholarships to pay for either vocational training or general Cegep. The Reflex plan covers vocational training, ACS, DCS, technical DCS or University. With Reflex, students receive their first scholarship upon registration. (see page 14 of our Prospectus for the complete details of our programs, and not only half as was posted by Mark) Most Ontario based company’s payout only after having completed their first year of post-secondary school . So you asked, why different plan, why not! Give parents the option to choose a program that meets their needs.
As far as Universitas returning 100% of the enrolment fees at maturity with the Principle, you will find this on pages 13 and 27. Perhaps a fact that you don’t know, Mark is that the AMF (Autorité des marches financiers) obligates us to return the enrolment fees at maturity. They have allowed Universitas to invest in the stock market,(Blue Chips) and due to this fact; we do have a much higher return than the Ontario based companies, who have been restricted to invest in guaranteed TB and Bonds. However, due to the fact that we invest in stocks we are not allowed any discretionary power. The Ontario Securities Commission allows all the Ontario based companies to have a discretionary power , that allows these foundation to decide how much, if any enrolment fees with be refunded, as well as how much if any profits and attrition will be added to the true value of the scholarships. Universitas, receives an annual external Actuary Certificate that states the following:
We did an audit of the three following elements:
. Tables of deposits in the 2008 prospectus (see pages 48-51):
These tables must be calculated so that the amounts invested by each subscriber bring in roughly the same level of investment
income to the scholarships of the beneficiary’s cohort.
The tables must take into account the age of the beneficiary at the time of subscription, the savings period and the method
of deposit selected by the subscriber.
. Distribution of income and expenditures for 2008:
The distribution of the income and expenditures of the Foundation by cohort and by plan must be just and fair.
. Calculation of scholarships whose payment is made between September 1, 2008 and August
31, 2009:
The level of the scholarships paid to beneficiaries must be calculated to represent, on the date of their payment, an accurate
share and a just and proper division of the net income accumulated in the Scholarship Fund.
It is our opinion that the methodologies used, as well as the assumptions made by Universitas Foundation of Canada regarding
these three elements are proper and fair, and well documented.
Now with that said, I know you will bring up that the stock market did not do so well in 2008, and yes, that is a true, in fact our return which again is clearly shown in our prospectus on pages 18 & 40 is shown at a lose of -4.8 after our administrative fees. I am very pleased to inform you that because we invest in the Stock Market, we ended 2009 with 9.91% minus our administrative fees (which again decreased ) 1.07% for a plus value of 8.84%. Even thought we show a lose for 2008, our 10 year average net return (after expenses) is 6.68% for 2009, this should be higher for 2009. (page 59)
You asked whether our investments were made in according to National Policy 15?….see responds below based on our prospectus Page 21.
Foundation Account
The investment policy regarding the Foundation’s account allows the
two portfolio managers appointed for this purpose to make investments
in accordance with the provisions of Decision 2001-C-0383,
specifically,in paragraphs 8 and 9 of Article 1339 of the Civil Code of
Quebec respecting investments presumed sound, in which a director
of another’s property is required to place the money under his
administration and, where appropriate, of Regulation C-15 on the
prerequisites for acceptance of prospectuses for scholarship foundations
¨Below again taken from our prospectus on page 105…..how we can refund total enrolment fees.
1. The Subscribers Savings Fund
• The fund is made up of the subscribers’ savings and the amounts required to meet the obligation to refund membership fees on the maturity date.
• It is entirely made up of Canadian fixed-return investments of which a minimum of 90% is guaranteed by either
government or public organizations.
• This fund’s investments are managed by Addenda Capital Inc., a firm specialized in this type of investments.
2. The Scholarship Fund
• This fund consists of:
In part, revenues generated by the Subscribers Savings Fund;
In part, the amounts paid by the CESP (CESG and CLB) and the MRQ (QESI) as well as the revenues accumulated on these amounts;
The returns paid by the insurer on the subscribers’ group insurance.
• The Scholarship Fund is composed of diversified Canadian investments with a target investment in Canadian shares
of 85%.
• This fund’s investments are managed by Jarislowsky Fraser Ltd. and Montrusco Bolton Investments Inc.
As far as the administrative fees are concerned, you will see on Page 103 that for the 6th consecutive year we have decreased these fees. Any organization whether it be Universitas or CET, CST, USC, Heritage, we have to pay the trustee, depository, our administrators, the auditor, the actuary firm, employees etc. No company can be run without expenses. The law allows any non-profit organization to use 25% of their revenue to cover administrative fees. 1.07% is a very minimum amount compared to that.
Effective 2010 the Insurance now is optional. However, in 2008 1.7 million dollars was deposited into the beneficiaries account resulting from Insurance discounts . (page 88)
Wow, Mark…I don’t even think I have answered half of your questions this evening…..I’ll leave the remainder for another day. As well, Mark, you are more than welcome to move to Quebec and do CET business here. For the more than 6 years, I have been associated with Universitas, I have only come across one person with a CET plan, and have never run into any reps.
You know the irony of two group RESP salesmen arguing over which plan sucks less should not be lost on anyone reading. Skip both these options – self-directed couch potato investing is the only way to go (imho).
Geoff: We are not arguing over whos plan sucks less, I was simply answering questions that were asked….Do I not have the right to do so? And IMHO I certainly wouldn’t invest with a couch potato
@ Cory – of course you have the right. I never meant to imply otherwise. Nor has CC ever (to my knowledge) banned your posting, so I don’t understand your comment.
Bing couch potato investing. It’s not a person, it’s a strategy of DIY investing.
What about USC RESP Plan..
Can you advice me ??
I would say that USC is probably the best RESP provider out there.
First of all, going with an RESP specialist is much better than going with ANY of the banks. If you walk into a bank and ask about an RESP, they get so confused because they arent specialized in them, nor do they know much about them. I would rather go with someone who specializes in them, because I can be certain they know what they are talking about. Also, banks charge MERs, which are roughly 2.5%. I did the math and MER charges definitely outweigh the enrollment charges you will get with the RESP specialists (CST, USC, and Heritage).
So the three RESP specialists I found while researching online as I just mentioned were: Heritage, CST, and USC.
Each of these 3 companies prospectuses are found on their respective websites and can be downloaded for you to look at. I’ll admit, they contain A LOT of information, but if you take the time to look through it like I did, its not that bad.
One thing I found out was that USC and CST are owned by not-for-profit organizations. So any excess revenue that USC and CST make they are legally not allowed to keep it because they are owned by not-for-profit organizations. In the prospectus it says that the Foundation (not-for-profit organization) will give their excess revenues each year to the students who are attending post-secondary education that same year. I looked at the numbers in their financial statements and the amount of money the foundation gives back actually covers the cost of enrollment fees and then some more. I don’t believe Heritage partakes in this profit-sharing because they are privately owned.
So out of the three, Heritage is probably the one you shouldn’t go with.
If you want to get really picky and compare USC and CST, take a look at their rate of return over the last five years. CST has an average rate of return of 4.5%, and USC has an average rate of return of 5.7%.
This is the reason why I say USC is the best RESP provider out there.
Also: I noticed in a few other posts that people argue why you would put money into government bonds for a newborn child’s education, rather than with a bank and into higher risk mutual funds. If you want to have a heart attack everytime your mutual fund goes up and down like a yo-yo every month, then go with the banks. But if you want a secure investment thats safe and will still make decent interest, go with the government bonds.
Just like the line from the famous Turtle and the Rabbit story….. Slow and steady wins the race!
Rob,
My first guess is that you are a rep for USC. Seeing as how I can’t prove that, I will assume you are just a guy trying to figure out group RESP’s.
I want to clarify a few things you said that were incorrect. You stated that you think USC is the best, but only state a couple of ‘facts’.
Firstly, the claim that CST and USC are owned by the non profit foundations. This is true. That any revenue generated by the for profit sales arms gets into the hands of the children, is at best, questionable. (and not provable by the limited disclosure in the prospectus.) To quote:
“So any excess revenue that USC and CST make they are legally not allowed to keep it because they are owned by not-for-profit organizations. In the prospectus it says that the Foundation (not-for-profit organization) will give their excess revenues each year to the students who are attending post-secondary education that same year.”
You are doing a bit of assuming, which is what these companies want you to do. You are assuming that the for profit sales arms don’t spend everything they earn every year (they probably do). And you are assuming that the money that the non profit foundation donates is this money. (It isn’t) Basically, all of the companies are set up very similarly, and generate additional money for the children who go to school. Some companies call it different names, which ends up leading people to believe that the have an ‘extra’ source of money. (they don’t) There is an easy way to prove this. USC and Heritage have very similar 10 year averages, and their scholarship payouts are almost identical (even though Heritage offers more flexible options, so a higher percentage of children can benefit from the extra money.) If USC had additional money from the for-profit sales arm, it should translate into much higher scholarship payouts. (it doesn’t)
As far as USC being better than CST, I will concur on the return numbers. CST has been horrible for the last few years. I would say that is a good thing to consider when making a decision. You should, though, mention that CST allows more flexible options for a child going for a short duration program, than does USC.
Just wanted to make sure there was some fairness in the discussion. If any plan was chosen based on incorrect information, or just a couple of variables, then the family might not be making the best decision.
I will let the families decide what the best plan is for them.
My two cents.
Non profit does not mean not for profit. I had the dubious pleasure of volunteering for a non profit men’s recovery home many years ago. Everyone involved was doing a whack of free work because well it’s non profit. Then I began to do the math and figure out where the money was going. Basically the guy who ran the place was paying himself a 6 figure salary for doing nothing. Any excess I’m sure was funneled to his pocket. He had a very nice house near Mount Pleasant and two cottages and several new cars. It was a bit of an eye opener for me. Frankly it’s the same kind of scam some charities have where hardly any of the money gets to the people who need it.
So saying it’s non profit really doesn’t impress me too much. There are legitimate non profits just like there are legitimate charities and they do wonderful work but some are highly questionable.
Further if you want a GIC RESP TD has one with no fees, no mer nothing.
As far as bank reps vs group plan reps they are both seriously lacking in education in this area. Bank reps just seem to lack information while the group reps I dealt with were quite frankly evasive. I asked a simple question to these group reps. What is your rate of return?
The answer always came back to well the government gives you 20%. I just kept saying I know about the government grant it’s available no matter which place I go what I want to know is what is your rate of return. Then it was well we have this bonus we give because some kids don’t go to school or parents drop out. I personally am not too comfortable with this; with a self directed RESP you can stop contributing all together and if your child doesn’t go to school you can take your money out plus the interest earned plus the interest earned on the grant amount all you have to pay back is the government grant, plus you can roll it over into your RRSP if you have the room.
In the end I never got a straight answer to my question. What is YOUR rate of return. I did not deal with only one rep or one plan. I felt like all three reps I dealt with with very evasive.
Rachelle,
Sorry to hear that you had bad experiences with reps being evasive. I can’t understand why they would not want to share their returns. (the return fluctuates from year to year, unlike a GIC) I can only assume that they were not well trained, and relied on people not asking many questions.
As far as non profit, you are right. There are good ones, and there are bad ones. Unlike the outfit you worked for, though, the group plans are strictly regulated as to how fees are taken. Owners can’t just ‘pad’ their pockets, as the books have to be audited every year, and the money all has to be accounted for.
I do want to educate you a bit on GIC’s, as you make it seem like the banks do this for free. They do nothing for free. They take your money and give you, let’s say 1.5% on a GIC. They lend this money out at 4.5%. You make 1.5%, they make 3%. They make twice as much on your money than you do. Granted, it’s not a fee, but it is a cost of investing. They might also go and invest your money, and keep all profit over the 1.5% they give you. I personally feel GIC’s are a good place to ‘park’ money for the short term, but bad to invest for the long term.
You are right, though, to not invest in something you don’t feel comfortable with. If you can’t find someone who can adequately explain a group plan to you, you shouldn’t invest in one. I wish you luck if you are trying to find something safe, but better than a GIC.
One other thing I wanted to clarify is that with all of the group plans being marketed today, if a child doesn’t do to school, they can transfer the money to the parents RRSP, the parents can pull it out as taxable income, and with some, it can be transferred to a different child, or used by the parent’s themselves (as an RESP, please note that this last option is not available at banks, as far as I know). Of course, if a child or a sibling of the original child doesn’t use it for schooling, the grant monies must all be repaid.
Cheers,
Rachelle,
One other thing. If you really feel like the people you were talking to were evasive or untrained, I urge you to call their respective companies an let them know. They will appreciate the information, as they have a hard time of knowing what is happening in the house while the rep is there. I realize that this won’t help you, but it will help other families in the future.
Just some advice.
We open RESP with USC on 21 Nov 2009. After 60 (jan20 2010) days they sent official agreements note with package. We were not agreed some of condition mention on agreements then then we cancelled our RESP within 7 days of receiving our official agreement(28 Jan 2010). Now they not sent fully refund. They cut my entire enrollment fee and other changes.
What should I do for get my all hard money? Anybody can help me regarding this matter USC RESP plan.
Anyway we get my refund….
Thanks
Kaushik
Kaushik,
60 days is far too long, (in my opinion) for you to get your welcome package. I would call the company, explain your situation, and be firm about demanding all of your money back. Explain to them that it was not your fault that the package was delayed that long. Tell them that you will file a complaint with the provincial securities commission if they do not help you out. If they do not help, follow through on your statement, and go to the securities commission. I think that you will find that the squeaky wheel get the grease, and that you will be happy with the results.
I wish you luck.
Dear Mark,
I wouldn’t buy a GIC or government bond on any investment that has a 18 year time horizon.
I was referencing OP wrongly when he stated government bonds my point is that if you want to hold these securities you can because TD has this kind of account.
For me because I am low income I chose to go with Investor’s Group instead of TD because the only thing available with TD that applies for both grants is indeed the GIC account. IG was the only company that applied for all the grants. Unfortunately not self directed but… so far this year alone I am up 10% not including any contributions.
I’m sure it has nothing to do with the reps honestly even their brochures don’t mention what their rate of return is. Why not? Their own documentation is clear as mud, filled with emotionally charged pictures and total market speak.
I’m sorry to hear your story Kaushik, I hope it makes you feel better that you were ripped off so that USC could give some other kids your money so they could get extra money, surely sorely needed after their lousy returns. Honestly I hope you sure to get your money back.
Cheers
Mark – in your example you’re ignoring the fact that the bank is also taking on the risk that the person borrowing the money may default. So yes they are taking money and paying out 1.5% (guaranteed) but the bank is not guaranteed they will receive the other 3%.
One other thing that’s never mentioned is that GICs have an inflationary risk inherent to them. In other words, a guaranteed return of 4% with inflation at 2% = a real return of 2%.
That’s quite a scam Kaushik and I’m sorry. Give 60 days to cancel for full refund, and wait until day 61 to send out welcome kit. Good luck.
I just really think these group plans are terrible products, sold under false pretenses and with little value. That’s my informed opinion, Mark and others have different thoughts. But I do find it informative that very (very) few comments on this blog from existing group RESP plan members have anything positive to say; most of the positive comments come from salespeople I think..
Rachelle,
IG is not the only place that applies for all the grants. TD is the only bank that doesn’t. (as far as I know.)
I wonder why you say that the reps won’t tell you the returns (one company I would believe – three I slightly doubt, but I guess it is possible). You also mention that you can’t find the returns in the compaies sales materital. (some have it, some don’t – that is true.) Then you go on to say that their returns are lousy. You couldn’t find out what they are, yet you claim that they are lousy? Odd.
For the record, of all the mutual fund sales people out there, I personally like IG the best. I have run into some really slimy sales reps, from a lot of compaines, but to date I have no complaints against IG. I therefore don’t think that they would be running around telling people that they are the only place that applies for all the grants.
Geoff,
I realize that the bank does take on risk with their investments and loans, but I was using an overly simplified illustration. I also didn’t mention that the bank act allows them to multiply what they have in savings, and lend that out. This allows them to make far more than what I showed in the illustration.
As far as people complaining, with any product or industry, that will exist. I would guess that there are over 100,000 children that started their first year of schooling with a group plan in 2009. How many complaints do you hear? Obviously, there will be a few. Even if 0.5% complained, I would expect 500 kids on this blog. I am starting to see children go to school with this, and must say that the ones I know are thrilled. Like anything, if you piss off one customer, they will tell 100 – if you please 100, they might collectively tell one. Just the way it works.
As far as people here ‘boosting’ group resp’s, you are right, they may be sales people, or customers, but you can’t tell. Just like you can’t tell if the people attacking group resp’s are mutual fund sales people.
Another side note on GIC’s for RESP’s. Banks won’t moniter it for you, and you might get locked in so the money can’t be used when needed. eg. start with a 5 year GIC. The bank will automatically roll this over for you. when the child turns 15, they will lock it in for another 5 years. Won’t be able to access it until the child turns 20, or lose three years (the best three years) of growth. I have heard of this a lot, so watch out if going with a GIC for an RESP.
Again, whether it is a bank or group RESP, the government didn’t set them up to be used as a biggy bank. Don’t think that the government doesn’t have some rules on taking money out of a bank RESP.
Cheers,
The cost isn’t the only (or even the main) problem with Group RESPs. It’s the lack of flexibility. You read so many complaints here on how the Group RESP withdrawal rules are more restrictive than the Government’s. The Group RESP contribution schedules are also overly restrictive. It is important for people to realize that they are signing up contributing to their child’s RESP for a long time. If they change their mind or their circumstances change, they lose quite a bit of their capital.
My understanding is that RESPs are a loss leader for banks. They are not in RESPs for the money. They are in it to offer a complete range for products to clients. Of course, their motive isn’t charitable. They are hoping you’ll have other larger accounts with them such as mortgages and RRSPs.
But that ain’t the case with Group RESP providers. They are depending *solely* on Group RESPs to make their profits. I don’t think anyone begrudges a service provider their share of profits. It’s just that clients like to see a benefit as well. My contention is that a significant percentage of Group RESP clients lose a significant chunk of capital when they had to stop contributing for whatever reason or do not get full benefits. That’s why you hear so many complaints.
Mark,
I am actually a freshly graduated university student that benefitted from the USC Group plan. My mom signed me up with a plan when I was 10. I am 22 yrs old now, and just completed a 4-year commerce degree. I was just looking into the different RESP providers because i find it interesting to see the different types and was curious how the money I received was generated. And yes, I suppose my beliefs could be a bit biased since I had a USC plan, but the facts I stated were all true (to the best of my knowledge). But I just thought I’d let everyone know that I am the product of a USC plan, and it does work.
BUT yes, I suppose an important fact I left out was: the Group RESP primarily benefits children/students that go to a 4 year program (and complete all 4 years). If a child just ends up going to a 2 year college program, the Group RESP isn’t very beneficial.
At the end of the day it looks like it comes down to risk tolerance. If you’re willing to go riskier with the potential for a higher return, go with a Bank. If you’re looking for safe, steady growth, go with a Group RESP.
Let’s face it, the way we’re going by 2025 (or earlier), you’re going to need at least a 4-year undergrad degree to get an even remotely decent job… so you SHOULD get an RESP from SOMEWHERE.
My two pennies
Cheers!
CC,
Again, as far as I know, all the current plans being marketed have an option that allows them to use the RESP using only the income tax act rules, but they don’t receive any additional money. (Some older plans do not allow that, which does get some people a tad upset. Those plans are not being marketed anymore.) Some even allow the plan to be transferred to a sibling, another child, or to the parents themselves. This is more flexible than the banks.
Again, as far as I know, all the current plans being marketed have many contribution schedules. This allows people to choose what is best for them. I have people that do all sorts of plans, even multiple for one child. It is possible to lose money, if no further contributions are made, but the percentages that I have seen are incredibly low. We do everything we can to help people keep the plan alive, with as much money in it as possible.
You are right that the banks aren’t fond of RESP’s, but they don’t do anything at a loss. It is just hard for them to have their staff trained, as RESP’s are a tad complex, and they carry many products. The training is the biggest reason that the banks do not like RESP’s. On other reason that the banks like to have ‘everything’ is that if people start thinking that they should get their RESP’s elsewhere, they may start to think that they should get their mortgage, etc. elsewhere. They like people to believe that they have the best of everything. (I encourage people to check out a mortgage broker, when thinking about a mortgage.) They do, however, still make a tidy sum off of RESP’s, regardless of how people invest. They have fees for minimal plans to insure this. I trust that you know this, but your post seemed to indicate that they are doing this for little or no money, just to get people in the door.
As far as hearing so many complaints, I only hear them on this board. Considering that the group plans have roughly 25% of the RESP business, and sign up 100,000 + families a year, a handful of people on a blog is not surprising. I personally make sure that everyone I sit down with has full knowledge to make an informed decision. No one that I sit down with can read this blog and say that they weren’t aware of X, Y, or Z. If someone does invest without understanding what it is that they are doing, they should take some responsibility for their actions, as opposed to blaming someone else for their decisions.
There are a lot of options for people who have circumstances that change. I have had people that have to stop contributing, I have changed the start dates of many plans, and I have changed many plans to make it work for the circumstances of the family involved.
As far as being inflexible, I can attest that at least one company routinely ‘bends the rules’ for children who are attending school, and have circumstances that require them to take much longer to finish schooling. These plans are not set up to be punitive, but to help as many children as possible, have as much money as possible. Again, each plan is different, and parents need to do their due dillegence when choosing. Sadly, many decide with emotions, which is one of the reasons people and investing don’t mix.
My two cents.
Rob,
Congrats on your degree, and I am glad that your Mom saved for you.
I will point out one thing, though. Not all group RESP’s are set up with restrictions that 4 years must be taken. (CST and USC have that restriction.) Some allow 2, 3, or 4 years in their group option, so it is not as risky if the child doesn’t go for 4 years of schooling.
Again, congratulations, and I hope the job market is good to you.
Mark,
re: “As far as hearing so many complaints, I only hear them on this board. ”
Mark, you and I have spoken on different blogs on this very topic. But if you want more references, both Ellen Roseman and Gail Vaz Oxlade * have come out against group RESPS, with many comments from those who’ve been burned by them.
I think the main point CC is trying to make above is that there are MANY forms of risks. Yes, a self-directed plan has the risk of losing money (although over an 18 year period it’s a small risk, but it is a risk). But a so-called ‘safe’ group plan has risks as well – the risk that inflation will overtake the safe investments its making, the risk that your child will not go into a program that the Government accepts but the Group Plan does not, and that your circumstances may change and you may need to stop contributing and you will be sacked with fees for doing so.
What I don’t understand is why anyone so concerned about risk would simply not open up a self-directed resp plan using etfs or other low cost funds and buy bonds/gics themselves.
* Source: http://www.google.com/search?q=why+group+resps+are+bad&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-GB:official&client=firefox-a
Finally, I cancellation my RESP plan and I will get my all money.
Thanks for all who have to nice advice.
Geoff,
Sorry it took so long. I was going to write a long reply, but haven’t found the time. On that note, this will be brief.
You are correct, and I appologize. I have been on the other board, (million dollar journey, if my memory serves me). I haven’t been on it in a while, but I have noticed that it is largely the same people posting on both. This is why, (I guess) in my mind, I lumped them both together. My main point is that I haven’t encountered this in my personal travels, or my experience as a rep. (I have run into a few issues with what I consider ‘dishonest’ reps, which deserves to be discussed by the government, not us, but this doesn’t mean that their companies are bad.)
Also, people on the internet are ‘faceless’, so there could be one person posting with 5 different names. (you know what they say about pleaseing customers.) Again, with the volume of business that combined all group plans have, a handful of people who are disatisfied does not surprize me.
Again I point out that only time can ‘prove’ what will be a better investment. I, with eyes wide open, and {saying this while trying to be humble} a tad more experience in the financial world than the average bloke, happily invest for my family in a group plan. IMO, the right group plan is a great, handsfree, and safe option. I think a handful of us can respectfully agree to disagree, can we not?
Cheers.
I started wit a small investmeant of $42,86 sice for 6 units in 1992, total money at$8900, at this time as i understand it, my son at 18 is enrolling in th a 4 year BA program, if ecepted and pasing each year he will get approx this amount of mony each year fro USC Canada, sounds like ti works for me, amd i saying something wrong here? this is always how it was explained to me, so his four years of tuition and dorm are covered, I will help with the rest, this is a 400% return on my original benefit, so my son needs to past and complete to get the full amount, not rockect science here
Hello everybody!
I am looking to do a bit of both: pooled and DIY RESPs for my 9 months old. But I’m fairly new to Canada and very new to RESP and investing, so I’m scared. All I did for now is carefully digested the USC prospect and read some forums and articles.
The USC so far doesn’t look too bad, but I haven’t met a real person, who benefited from it and they don’t give the examples of one particular person (“in and out”). So i wonder if maybe Rob, or somebody who went all the way with USC, wouldn’t mind to share his numbers(how many years? how much each payment? how many units at the end? what was the return? principal? interest? grants? top up? ) Because the millions of $$ in their prospectus doesn’t say how much a child received…
Canadian Capitalist : I see this discussion started a wile ago, just wonder, is it still worth to open a TD e-fund RESP? How did your investment performed over this time? How does it look now? Or would you recomend something different for the current situation in economy?
Thanks in advance.
@ Irina – I think the biggest drawback to these plans is the lack of flexiblity which has been talked about in great detail on the comments, be sure to read through them all. As for the performance, remember an RESP is for long-term investing. Fluxuations in the past 10 years aren’t as relevant as confidence in the longer term prospects. I take the approach that 15 years ago I drank coke and used microsoft products and drank starbucks etc so assume that I will 15 years from now, which builds my confidence. YMMV.
Thanks Geoff for reminding! I’m very careful with what I do with my money. Group plan is my backup plan, but their 136p. prospectus is not enough for me, I want more real information. And in this case past information it better than non at all. If nobody will be willing to share the numbers (and I’m thinking about comparing more than 1 person) I wouldn’t even bother with opening it. Unfortunately, with my brand new e-fund account nobody can predict ether… It’s now I’m regretting, I knew nothing about investing and didn’t by MF a year ago, but at that time… nobody knew (almost nobody?) about what’s gonna happen next and when…
@Irina: I’ll second what Geoff said. We have a TD Mutual Fund RESP invested in e-Series funds for our 3 children. As the kids are very young, most of the portfolio is invested in stocks. We did this with the full understanding that stocks will fluctuate a lot and there are no guarantees on returns, even over 15 to 20 years. However, as time passes, the portfolio will become more conservative by adding new investments in lower risk assets such as bonds or GICs.
The are two main advantage to a self-directed RESP: (1) You have control over when and how much you want to contribute and (2) You can adjust the risk of the portfolio based on your needs and tastes.
Here’s my actual experience so far: All three RESPs are at or below book value (total contributions + CESG). All RESPs are 80% invested in stocks.
Two were started up in 2005. Total contributed + CESG = $16,800. Market value = $16,000.
One RESP was started in 2009. Total contributed + CESG = $6,000. Market value = $6,000.
Irina, with any group savings plan in their prospectus, you should find their 5 yr and 10 year average annual return…this will give you a good idea of what you can expect. Group plans have the track record of EAP made to the kids, unfortunately banks don’t. They only started offereing RESPs in 1998 with CESG started. In an article that was published this week, the CSA is looking into doing a clean-up with RESPs offered by banks. They want the banks to offer a prospectus with a description of the types of investment they use. What has been found is that most banks are not upfront with their customers, and in more than 50% of cases people don’t even know what their money is invested into. The article I received is only in french but I’ll try and find it in english, if so I’ll post it.
@Cory: Since you can invest in any of the bank’s mutual funds (or pretty much any stock, bond or mutual fund in the case of a SDRESP), banks cannot put out a prospectus for their RESPs. You can always look up the prospectus of the individual mutual fund for past returns. It is incredible to me that you claim there is not enough disclosure. There is plenty. It is Group RESPs that have had plenty of criticisms about disclosure including the past practice of disclosing gross, not net returns.
I never claimed any such thing…I was stating information from an article I read. However, banks certainly are neglect in disclosing all fees involved, and that is what the article was referring to. The CSA wants banks to disclose the all fees incurred when opening a RESP. I agree that the prospectus from Group plans is long and detailed but the securities commissions insist on disclosing all the information found within. Especially the AMF in Quebec. As for group plans disclosing gross and not net, you are correct when referring to most group plans but not all????
I don’t believe ether one of them (banks or group plans) are willing to provide the details if they don’t have to… The USC rep. was throwing the number of $$$ they payed as an EAP, but didn’t say how many people it was divided within $1.000.000 for 1.000.000 students = $1 for each!
On the other hand banks… I was shocked by the MF ADVISOR who opened a MF RESP for me, when she “suggested” a “complete portfolio solution for my type of investor” and said that it has “only” 1,9 MER and if I was to make the same portfolio by myself the MER would be… (she started to sum all the funds within it!!) 7.9% !!!!!!! Is she so stupid with 20.. something years of experience? I guess not, but she knew I’m new in this. So thanks to my background from another country – I doubt everything I hear at first and then think and use math and logic and search for the facts. How about people who will trust “professionals”?..
Most collective RESP providers have been around for well over 40 years and they all have thousands of kids that received their EAPs and were very happy their parents made a wise decision. I meet many of them every week who open a plan for their own children. I don’t believe they would still be allowed to operate if they were dishonest. Of course their will always be people that are not happy and find something to complain about but that is part of human nature. I agree with you that each person should do their research. Know the right questions to ask, and if you can’t get a straight answer move on. If you decide to go with a bank, ask to see the performance of the fund they have choosen for you. Not one, two or three years, ask for the past ten year annual performance, ask what the fees are. I just read a great article in the Globe and Mail, which list 19 fees that banks might charge for investments.
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/investor-clinic/how-do-investing-costs-hurt-returns-let-us-count-the-ways/article1646632/
@Irina: Good for you. You should always think through matters yourself and not blindly trust whatever is put out by vested interests or even well-meaning folks.
I can only tell you what I have. With a TD Mutual Fund RESP, there are no fees. Since the funds are invested in e-Series Mutual Funds, the highest MER for a fund is 0.48%. I would estimate the all-in cost of a TD e-Series Portfolio to be less than 0.50%.
@Cory: Yes, bank mutual funds have fees. But there are also ones with low fees. Low costs are an important criteria for DIY investors and it is possible to build a RESP portfolio and pay rock-bottom fees. That’s what I’ve done personally.
And FYI, Group RESPs also have hefty fees. I estimate the effective fees of these plans works to 2.15% per year.
http://www.canadiancapitalist.com/the-mer-on-group-scholarship-plans/
Hi !
I just wanted to say, (as I am extremely irritated, frustrated and horrified) that I wish I had NEVER opened up an RESP plans with the CANADIAN SCHOLARSHIP TRUST FUND / C.S.T. CONSULTANTS INC. for my children. I am trying to comment on as many sites as I can, because something has to be done about these unethical business practices. My husband and I have a total of 7 plans for our 3 children. We are facing financial difficulties and now have to cancel these plans because we need access to these funds to survive (never mind saving for university). We are disgusted to find out that we will be penalized 48 % of our contributions if we cancel today. This is legalized fraud. I’m sorry. We knew there were fees when we joined, but the implications of the fees were not explained to us properly. How can you justify taking 3,700.00 from an investment of 7,800.00 ??? This is absurd and something must be done so that young families are not taken advantage of like this anymore.
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Hi Everyone , I was approched by heritage funds and did the application, after reading this thread and the prospectus I quickly cancelled my application. We were told the fees would be returned to us once the completion of the plan . Also the beneficiary can take and use the money for what ever school program they want not just for college or university. Read the fine print.The fees are not all returned to you it is on a “discretionary payments and that you should not count on the discretionary pymts . The foundation will decide if youwill receive payment in any year and how much the pymt will be ( this iincluded membership fee returns and enhancemenrs to EAPS” What a crock of sh../ I cancelled today and thank god I did, the rep called me this afternoon to say how high again the bank fees are and that the fees were not high with heritage. That is al they talk about is how high the bank fees are they dont tell you that there fees are not guaranteed back. Also to get the potential fees back the student would hve to go to school 4 yrs program / What a scam.. if anyone is aproached by these people RUN don t even let them makean appointment with you let alone an applicaiton . how stupid was I . pretty stupid but I learned my lesson and got out while i could. Iam going to eventually open up a resp with the bank and manage it on my own. Gics are safe and in the long run have a good return along with efunds. I total agree with Sandra and the capitalist. Group plans are not the way to go.
I am looking for the pros vs cons, comments, criticism &/or input as to the RESP plans provided by Global Educational Trust Foundation. They can be found at: http://www.globalemc.com Thank You.
Yoccam, all I see are lock in fees, transactions fees, and management fees. They invest in Bonds, and principle protected notes and their returns averaged 4.18% yearly over the past 5 years.
The TD E-Fund Bond Index (MER 0.48%, no other fees) over the same period has an average annual return of 4.56%.
If you were to use the GETF plan and do a monthly deposit (Which I assume is the most common way to do it) you also pay $10.00 per year as a depository fee. This plan seems pretty much in line with all other plans as an adequate way to put aside money for your children. Just remember that doing something is almost always better than doing nothing, and it’s not like the plans are bad, just not good in my opinion.
Barney,
It sounds like you have a reason to be upset with the rep who talked to you. It sounds like they tried to leave you with the impression that the fees are returned no matter what. Obviously, the material that they left, along with the prospectus, explained exactly how it works, so your issue is with the rep, not the company. I am sorry that you ran into someone in the industry who is like that. I strongly encourage you to call the company and file a complaint. Obviously, you don’t want someone else to go through what you did, and I can assure you that any company will act aggressively on a complaint from a consumer.
I do want to correct a couple of your comments, though.
First: You have issue with the return of fees. The return of fees and other extra money from the non profit foundation in a group plan cannot be guaranteed. The money required to do that is variable, and how it is generated is out of the non profit foundations ability to predict/control. The regulators recently required all group plans to let people know that these funds are discretionary. That being said, the non profit foundations have paid them out this way every year, and it is the intention in the future that they do. (They cannot keep the money for any other purpose, after all.)
Second: I am not sure that you intended to, but it seemed like your post implied that a child cannot go to any school other than a college or a university. I am quite sure that is not the case.
To the person who asked about Global. I cannot speak with total authority, but I think that the Global plan looks a lot like a regular group plan, when it comes to fees. It does, however, not have any of the extra benefits from the non-for-profit foundation (return of fees, extra money, etc.) If this is true, then it basically is a bank plan with a front end load. I haven’t looked into them much, so please research more, but if what I believe is right, it doesn’t sound like they have a compelling product. Again, they are a very small outfit, and I don’t deal with them much, so please read their prospectus yourself to be sure.
To CC and Cory’s comments earlier, I think that detail that Cory was talking about in regards to disclosure of fees from banks is a ‘two page disclosure’ sheet. The regulators have been trying for 7 years to force banks and mutual funds to provide, at time of signing, a two page disclosure sheet. So far (which shows how much influence the fund companies have) nothing has been done. Right now, by law, if a person walks into a bank and asks what the fees are on fund XYZ, the bank employee can say nothing. They consider a MER an expense, not a fee. The regulators are aware of this, but they have been stalled by years of studies and delay tactics. I know the people on this board wouldn’t have any problem countering a ‘we have no fees’ claim, but the average person wouldn’t. Everyone, please call your MP to complain.
Just thought that would make you chuckle. The gov’t knows the fees are high, and they know most people are unaware, but they sit idly by and let the fund companies do their thing.
Obviously, all funds in Canada have prospectuses, but most people do not read them. They rely on their financial planner to tell them what is what. A two page sheet detailing all of the pertinent information would be a great boon to Canadians in general. (Heck, it could even put pressure on all fund companies to lower fees.)
* CC, as an aside, did you see the reaction the Ontario government had when fund companies threatened to start an ad campaign to push the government to drop the HST on MER’s? The Ontario gov’t threatened to start an add campaign to advertise the excessive fees on the mutual funds. Guess who backed down.
Later
Hi Mark. thank you for your comments , I appreciate your encouragement to put a complaint in about the rep. I should but just dont want the hassel or the headache. I have other things to think about. I just wanted to post my comment and that if anyone is thinking of going with Heritage Group plans to read the prospectus first before signing anything . Also Thanks for calrifying ther discretionary payments . A side note regarding the appplicaiton scenario if you have a spouse on the application they dont require their signature to process the application. .that was also a piss off thinking they would not process it until the second signature was provided. Iam still waiting for the deposit back , got the cancellation confirmation letter and it says it will take 4 to 6 weeks to return the contribution. Just have to wait . Mark regarding the college or university comment this is what the rep told me I quickly found out that they can go to a trade school as well. the rep was trying every tactic of persuasion and misinforming me or leaving important details out. Maybe I should launch a complaint. I will keep you posted…
I also have had it with Heritage. When I met with the rep, she told me that I would qualify for a substancial amount of child tax credit since they would go by last years tax return (and at that time I was single). So she recomended that I take advantage of early contributions to maximize compounding interest. I also topped this up with savings. It was clear that this was only for a short period of time as when I filed my next tax return I was now married and did not qualify for the child tax credit, so our monthly contributions would be reduced from $400.00 to $100.00 per month (per child) She told me that the fees were “Not what they looked like, and we would get 100 % of them back if we showed proof of enrollment in a 3 week course. Even my husband or myself could enroll…..and we wouldn’t even need to complete the course……just show proof of enrolment”. So, when I faxed them to lower the payments (as was clear from the start), I was horrified to see the penalty we would have to loose. I called head office and the receptionist told me that you could only get 100 % of the fees back if my child was to enroll in a 4 year honours University program (and complete it), and half the fees for a 3 year University program. I called the rep and she said : “They really gotta stop giving advice about things they know nothing about…….they gotta do something about the people they hire in the office…..they should just leave it to us” ……We agreed that she (rep) would return to our house and redo the original paper work to reflect the $100 monthly contribution amount. This was done; however, not feeling comfortable about sending this outfit money for the next 17 years to discover their true policies in the end….I contacted head office (compliance dept), after several months of no return emails I finally made contact. Apparently ALL the fees are “discretionary payments” and you “should not count on receiving these back”.
……..bottom line …of my nearly $10,000.00 of contributions, I have just over $1800.00 !!!!!! Now, to me that is just plain robbery!!!!! Maybe legal, but we cannot allow other inocent people to be as foolish as we have been ! To top it off, the rep brought other peoples financial statements with her to show me how much other people have earned! These were carelessly left on my living room table when she left! So now I know you cannot depend on the claims to be private and confidencial !
The compliance department have offered no alternative payment schedule or compensation. They are only concerned about trying to retrieve the financial statements of the other people. I plan on contacting these people myself. Fortunatley, I have recorded (on the nanny cam) both meetings with the rep at my house and do plan to pursue this disgusting company with legal action. Even if I do not have a leg to stand on (because I stupidly signed the contract trusting the explanations of the Heritage rep ), I hope to help prevent other innocent victims from lining the Heritage comissioned employees with their childrens precious savings!!!!!
After reading the other blogs and seeing common threads, I am beginning to suspect that this fraudulent representation is perhaps a well planned out scam !
Please email me if you have experienced this also. We need to bring more light to this and perhaps have government intervention. After all, they are helping to support this with the 20 % top up and grants.
Hi JILL,
As you can see by my post from July 30, I am in a similar situation. Since that date, my husband and I have put all 7 of our plans on hold, so at least they are no longer withdrawing the 200$ from our account every month. We have spoken with them numerous times over the phone and sent an official letter of complaint to the company (Canadian Scholarship Trust Fund). Since August 6th, we have been waiting for a response from them concerning our “case”. We have demanded to have all of the monies that we invested back, with no penalty. We feel that the implications of the “fees” and consequences of opting out of the plan early were not explained to us properly. I have called several times concerning the case, and they still have not given us an answer, when they initially told us that it would take no longer than 30 days. We are prepared to take legal action at this point because we feel more than ever that these companies are taking advantage of people. It is disgusting to me that I face losing half of my investment to fees. It is downright insane and sickening. Their reasoning is that the “group plans” re-invest the monies back into the other plans, so that all the children that are in the plans get the money. In other words, those who can not afford to stay in the plan, lose their money to those that stay in the plan. It is not right. This money that I gave them was for MY children. I want it back.
I am with Hertiage my brother is with Scotiabank. I was all in a panic about Heritage until I calmed down. I was making too big a deal about the service fees, university requirements etc. I have 9 years of university and graduated in 1998 with a $50,000.00 student loan and a law degree from the UofA. During my last year of law school I was paying around $3800.00 for tuition, $3300 for books and materials and about $1500.00 per month for room and board. I just read an article stating that for 2010 tuition at a B.C. law shool was $9000.00 per year and I believe the UofT or Osgoode was $20,000.00 per year; also University tuition is increasing at 4 times the rate of inflation.
I did call Heritage and ask about the $5000.00 discretionary fee. They told me that if I cancelled the policy I would lose the admin portion paid to date which is about $3000.00. Then I compared the rates of return on the BNS plan my brother has to Heritage. He is earning 0.04% and I am earning 4.8 per cent. Neither of us are stock market risk takers, so I would urge everyone to stay away from mutuals for the next 8-12 years minimum. I was also given the opportunity to life insure the Heritage Plan while my brother did not have this option.
Also, with Heritage, you also get your principle back at some point, it will be moved into your RRSP or it will become taxable in your hands if you choose not to leave it in the plan.
As we live outside Edmonton, we both bought houses in central Edmonton and amotized the payments over 17 years. This way, we have an investment that our families can use over the next 17 years. Real Estate in Alberta since 1980 has averaged 8% and by locking in for 10 years, we secured interest rates at 5.05%; stay away from floating rates, the banks love these because over the long run, this will only make the bank money.
I also believe in the invest in yourself principle. If you are putting $250.00 in your childs RESP, you have to make $350.00-$400.00 to come up with that money. If you are paying 3-5% on your mortgage and only earning 1-2% in an RRSP, why not pay your mortgage out first? You would have to factor in the lost of the Government grants into this equation and the loss of intersest these could generate.
The main thing is to balance out the fees you may pay with the interest you are earning. If you son or daughter only takes a 2 or 3 year program and you loose the discretionary payment, you will still be saving more in the long run. Also, lets not forget that your child also has some responsibility to help pay for their own education and can use interest free student loans, grants, bursaries, scholarships etc. On top of my Student Loans I received about another $30,000.00 in these areas.
My plan is to provide my children with a free place to live (I’ll stock the fridge and deepfreez)e which over 8 years is worth over $100,000.00; give them a $100,000.00 RESP (or $95,0000.00); let them take out a $50,000.00 Student Loan (which is interest free until they graduate) – help them pay that back. In addition I have purchased 2 empty residential lots, I will give 1 to each and a Life Insurance Policiy with a savings component, so between the lot and the Life Insurance Policy, they should have about $300,000-$500,000.00 to put toward a house when they are in their late 20s or early 30s.
Even if you took away the lots and the life insurance and the free place to live, your $95,000.00-$100,000.00 will still get them through their first degree quite comfortably. If you pay your house off before they burn through this; your wages will also increase, you can let them take out $50,00 in student loans which will see them through another year or two and then you can help with the last year or two when things are really tight for student. The main thing is not to worry not about discretionary payments but to pat yourself on the back for a job well done simply for planning for the future. I actually had friends who dropped out of university because they nor their parents simply could afford more than one or two semesters of university. No one thought about the cost of books or room and board.
Your children will only thank you for having any type of a plan for them, no matter who it is with and you will minimize the impact on your retirement for doing so.
@ Ravonar – I find your financial advice extremely suspect.
“Then I compared the rates of return on the BNS plan my brother has to Heritage. He is earning 0.04% and I am earning 4.8 per cent.” – what mutual fund is this, and what’s the time frame ? CC has long posts about how misleading Heritage and other group plans are on rate of return.
“I was also given the opportunity to life insure the Heritage Plan while my brother did not have this option.” – How kind of them… betcha the premiums are way high.
“In addition I have purchased 2 empty residential lots, I will give 1 to each and a Life Insurance Policiy with a savings component” – ignoring the perils of buying real estate at the peak of the market, life insurance policies with savings / investments typically charge exorbitant rates – do term life instead
“stay away from floating rates, the banks love these because over the long run, this will only make the bank money.” – patently untrue. Milosvec york univ professor has documented its far better to go variable.
“I actually had friends who dropped out of university because they nor their parents simply could afford more than one or two semesters of university. No one thought about the cost of books or room and board.” – why could you get a 30K loan and not them?
Thanks Geoff, I wanted to reply but I am at work and it would have taken way too much time.
Hi Geoff: I do not know what the time frame on the BNS plan. For my second child (due January) I am actually looking at ATB guaranteed Alberta stocks where the prinicpal is guaranteed.
I agree the premiums are way to high per which is why I also purchased a term 30 on myself with 150K in it so my wife doesn’t have any hardship if I kick off.
With residential lots, they are two of a couple dozen I own. I am 39 and was a self-made multi-millionaire at age 37 simply by choosing to live in Northern Alberta near the oilsands and have invested wisely in commercial property and real estate and also developing the same which is why I love Alberta so much. I just read a report that we have the highest median income in all of Canada. Alberta is a province with wonderful opportunity and tremendous potential for anyone willing to work hard and take a chance.
As with for quotes. I really do practice Veblin’s theory of conspicuous consumption. I believe Benjamin Franklin also said something about we have more to fear from banks than standing armies.
I obtained student loans because I was dirt poor. On my last day of law school I had $0.25 left in my account and a balance of $500.00 on my credit card (which was the max). I bummed $1000.00 from my father to purchase my first few suits from Moores before being able to afford the $2500.00 ones at Singers and Holt. I am admittedly, the dumbest guy I know when it comes to investing which I why I enjoy reading everyone’s comments. Now I take my family and my mother twice a year, first class to the Carribean to stay in catered 1200 square foot presidential suites.
Cheers from the North Country
Ravonar,
By chance are you a commisioned Heritage employee?
I will encourage everyone to correspond with their RESP provider via email and not telephone as the answers you receive are tremendously different !!!
You do not know the rate of return on your Heritage RESP. Read your contract a little closer…it says: “This is an illustration not a contract. It is based on past performance and is not indicative of future returns. It assumes a 6 % rate of return on underlying investments (AFTER administration fee and portfolio management fee have been deducted). It is based on plans that matured in 2005 and whose beneficiaries attended an ‘eligible’ post-secondary institution from 2006-2008″. I remind you that in 2005 the growth period was 22 % (at least it was for my investment portfolio)……..those days are long gone !
The government approved schools and Heritage approved schools are not always the same ! BE CAREFUL! ….read the blogs of the people at the receiving end of the funds ! (or at least TRYING to receive the funds !)
As for your comment about getting your “PRINCIPAL” back, let’s be clear that “principal” does not refer to the amount you invested !
Here is a quoted example of one of my children’s funds. In one year I contributed $3,600.00. Here’s the breakdown:
Total Contributions: $ 3,600.00
Membertship Fees: $ 3,388.51
Insurance Premiums: $ 169.38….(This was news to me. I don’t recall it ever being mentioned!)
Depository Charges: $ 26.26
Principal: $ 2.26 ……YES ! That’s a whopping $ 2. dollars and .26 cents !!!!
Apparently, I still owe Heritage $ 3,120.00 in FEES !!!
As for having “LIFE” insurance on your investment, can you kindly point out to me on what page of the PROSPECTUS this is found ? I am searching the insurance pages 53 and 54 and cannot find “LIFE” insurance included anywhere in the insurance. Nor was head office able to give me this information.
I guess I should feel relieved that I have discovered this nasty Heritage RESP scam early on and have not invested 17 years to discover it in the end.!!! I have lost $ 8,000.00 of my children’s money in one year. This was money I worked very hard to save and I am devastated that I have been so irresponsible with it ! I truly thought that it would be compounding nicely for them ! It would have been much better spent on my mortgage. By far !
I only hope I can help prevent another innocent person from falling victim to this scam !
I don’t know how the HERITAGE salels representatives sleep at night !
JILL
@Ravonar: Geoff has pointed out some of the inaccuracies in your first comment. But I can agree with this statement: “Your children will only thank you for having any type of a plan for them, no matter who it is with and you will minimize the impact on your retirement for doing so”. All I’m saying is that a SDRESP provides more flexibility and can be assembled for very low fees — much lower than those charged by Group RESP plans.
I have been doing research on what I want to invest my money on for my 3 kids(that also includes talking to a Global rep.). Thanks to all of the great info. from both group plan reps and financial advisors I think I am going to go with a self directed resp. Even though I don’t know much more than what I have been told here and from the rep i spoke to Global does sound that it is structured better than the other plans. Global claims they have individual plans with group benefits and they use grants, fees and interest first for payouts than use the principal in the 4th year. If the principal isn’t used it goes back to the subscriber and any interest goes to their rrsp. However, like other plans don’t miss a payment or you aren’t eligible at their discretion for your fees back. I did ask a few questions that the rep answered very vaguely that made me leery; so i asked to be left with a copy of the agreement which seemed to frustrate them( I recommend everyone take time on their own to read all the agreement or have someone else they know read it through before they sign anything from any company including banks). Also run the company through the better business bureau http://www.bbb.com; you will see the rating of the company and any complaints lodged with the BBB. I did it with Global and they are a B-. However, Heritage has a better rating but a lot more complaints. Anyone out there with complaints please do file them with the better business bureau, people like me do check up on them.
@Jill: the rep I had here also pulled put a file of other clients and their statements to show me. I could clearly see their names and amount of their investments, in some cases I could see a copy of their drivers license. I guess the privacy isn’t at the top of these reps lists, just the sale is.
BUYER BEWARE OF USC RESP!!!! I was approached by a sales rep when my baby was born. The sales rep gave us the info, gave us her contact info. I checked online to make sure it was legit. We were assured the money could be transferred or the agreement could be canceled anytime. 7 years later, I’ve made no money, infact i’ve lost money with the fees involved and i’ve applied to withdraw my money and they delay me every way they can. Its been over 2 months since I requested my money back and I still have not recieved it. Keep in mind, this is my money being held by this investment company for my childs education. Under no circumstances should you invest with this company. I’ve met people who have experienced the same thing. I’ve also met people who have sent their children to post secondary and experience nothing but problems trying to get their money through USC.
I also have invested in mutual funds and RSP’s with major banks and a financial advisor, it took any where from 1 hour to 3 business days when I requested my money from them. Again, if you invest with USC RESP’s you may experience what I’m going through.
Hi Pat,
I am going through the same thing right now. If you look at my previous posts from July and September,
it has been a long process trying to get our money back, which we probably WON’T be getting back. Since my last post, CSTF has given us their final answer that if we cancel our plans, we will not be getting back our fees. They state that their representatives have not mislead us in any way and that we signed the contracts and took out other plans since the initial one, therefore we were consenting to the terms. So right now, we have begun the process with an ombudsman and our file is being transferred to the AMF.
If you stay in your plans until maturity (that means continuing to invest thousands of dollars) than you can get your fees back. We refuse to continue paying one more penny into the plans. The procedure with the ombudsman could take up to 6 months. After that, if we still can’t come to an agreement that we feels is fair, we will be contacting a lawyer. There is still a long road ahead…
Reading through most of these comments shows the ignorance of a lot of people. These so called self proclaimed experts like Canadian capitalist don’t want to or can’t understand the group plans, but are sure willing to cut them to pieces. A little bit of knowledge is dangerous!!! If your willing to make factual statements regarding these companies get the facts!!! I have never dealt with an RESP company. But I can sure tell you that I have been misled, stolen from & cheated by many BANKS. If I was an investor today I would run as fast as I could from any Bank because they have proven over many years that they are unscrupulous at best !!!
In fact today I opened a new account with one & they screwed it all up. If they can’t even do that, who is dumb enough to invest money with them? So work with someone who knows their product, seems trustworthy & has a track record. These people who invest in mutual funds & think they are so great, Mine went from $120,000 to $68,000 over night,what kind of fee’s are those????
Canadian Capitalist, after much reading and investigating the whole RESP debate I have come to the conclusion that your an absolute moron. For reasons that I refuse to argue here simply because I have more important things to attend to in my life.
My advice to anyone looking for an RESP, do your own homework and speak with every group RESP provider & bank out there. Make your own educated decision. Both options have advantages and disadvantages. It basically boils down to your risk tolerance.
I am unsure as to why, I guess it’s just the blatant disregard for the truth, but I feel I am compelled to state once again, Canadian Capitalist – you sir are truly a moron!
I have been in this plan since 2006 and now would like to transfer my plan to another RESP provider and take the financial hit.
I see in the prospectus that I can do this, but how do you actually initiate the cancellation and transfer to another RESP provider?
@Dan: I understand group RESPs just fine, perhaps better than most people who make a living selling these products. Just because you have a problem with banks doesn’t make Group RESPs a better product for saving for kids’ education.
@9146: So, let me get this straight. You are unwilling to argue my opinions but are perfectly willing to call me names. Wow, that’s real classy.
James,
The company you are transfering your RESP to should look after all of that for you.
Do you mind if I ask why you are transfering? Are you sure it is the best financial move for you right now? I only ask because I have heard of people getting bad financial advice, and then make decisions based on it.
Dan,
CC admits that he doesn’t fully understand the plans, but at least he has read one prospectus. I can tell by most of the posts here that most people haven’t. This is proven by the inaccurate claims that they make. While I will assume that most people here are sincerely trying to help, and think that they are speaking factually, I would submit that this is not the best source of information when finding out the details of how a group plan works. Read the prospectus. CC is intitled to his opinions, and should not be called names because of them.
Again, to anyone who has had a neagative experience with a group plan salesperson, please contact their company. The only way to ‘weed them out’ is to bring this forward, or else they will be out there doing it to others.
Jill, on that note, I really hope you are able to nail the rep who misled you. She could have set you up with a lump-sum plan for the initial amount, and a lower contribution 18 year plan. Judging from what you have stated (again, I am only hearing one side, but I will assume that what you say is 100% true) the rep really shouldn’t have set up you contributions the way they did. Keep in mind, thought, that you still had an obligation to read the documents that you signed up with. Even a cursiory glance would have given you enough info to change or cancel the plans earlier on. Again, not trying to blame you, as an ethical rep would not have allowed you to sign up as you did. As a matter of fact, reps are supposed to inform people that CCTC is flexible year to year, and should not be counted on as income. And let’s face it, people who recieve CCTC usually have lower incomes, and not a ton of money to spare to begin with. I will say that as far as talking to a laywer, you probably don’t have much of a case. (Unless your nanny cam video is really good. That might be the only thing that can help you in court, but I am not a lawyer.)
If anyone has any questions or comments, please feel free to email me.
Exactly, because arguing with you would be a waste of my time. You have proven you don’t have the mental capacity to understand both sides of the RESP options, you simple think that because you have your own opinions, they are the correct answer. So I can only draw to the conclusion that you don’t have the mental capacity to understand anything I would attempt to teach you.
The simple fact that you offer your biased advice to parents simply baffles me. Any reasonably smart financial advisor would realize that some investments are better suited to certain people, while other investments are better suited to other individuals. Yet, you can’t seem to grasp this simple concept.
And just to clarify, moron was an understatement; I was trying to remain civil, because I’m classy.
Mark – thanks for the info. I didn’t realize BMO (where my daughter has her RESP) would handle the transfer. I’ve already opened the new account for my son and will initiate the transfer immediately.
I’m transferring because I think CSTP smells bad. I don’t trust the organization after all the negative press and reading these blogs and I feel that in 14 years when my son will need the money to finance his education that CSTP will throw road blocks in the way preventing the withdrawal of our funds. I think the company is prospering from all the confusion around RESP’s and they take advantage of the families by giving you a hard sales pitch starting right in the hospital with promotional pamphlets when you are with your newborn. During those times your emotional state isn’t necessarily the most logical and its easy to make dumb decisions. That’s what happened in our case.
The sales guy from CSTP was a nice man actually, no problem with him. It’s just that the plan, well, sucks…
@9146: You don’t have to teach me anything. The fact that you are unwilling engage in a debate speaks volumes. You must be one of those “unbiased” RESP salespeople who have caused so much grief for so many people.
@Mark: I have to clarify what I meant by “don’t understand”. What I don’t understand from reading the prospectus is an estimate of how much attrition will boost returns. It’s not enough to know what attrition is today. You also have to estimate how attrition will look like over the term of an entire plan. That’s not information that is present in a prospectus. Other than that I understand these plans just fine and I have had no reason to change my opinion. If your kids are young and can tolerate some risk put some stocks in a SD RESP plan. If you are totally risk averse pick a SD RESP and invest it in GICs. Either way, you’ll have a more flexible plan.
@James Braum: Withdrawing from a plan now will mean a huge hit to your account balance. It may be worthwhile staying in the plan for a few more years and consolidating the units which you can apparently do. I urge you to carefully explore *all* your options and not take a hasty decision.
@ James Braum: I have to agree with CC on this, which is why I asked the question. You stated that you made the initial decision to go with CST because of emotions. Don’t make the decision to pull out from them based on that as well. If you started a plan with CST after 2001 you have their new plan, so a lot of the comments about ‘getting the money out’ that you see on line don’t pertain to your plan. You have to read the prospectus to get the details.
I would you suggest that you sit down with a paper and pen, and to out all of the scenarios. Figure out what returns you will need to get in order to make this a smart financial decision. As CC as said, you can contribute for a few more years, and then convert it to a paid up plan. At that point you can open another RESP at the bank, if that is what you decide to do. Either way, I wish you well and hope you are comfortable with whatever decision you make. If it helps alleviate you concerns, CST will be there in 14 years, as will your money. I just don’t want people to make financial desions that negatively affect them based on emotions or incorrect information.
@CC 9146: I am not sure what you mean by understanding attrition amounts. Are you suggesting that CST report what they expect attrition to be in 18 years from now? That is something beyond their control. As far as how attrition looks like over the entire life of the plan, that can only be extrapolated using historical numbers. Similar plan have been in existence for over 45 years, so they have a fairly good guestimate at how attrition might payout.
As to changing your mind, I wasn’t attempting that. We can agree to disagree.
Mark, CC – thanks for your advice to stay in the plan for a few more years then consolidate the units down the road. I think if I withdrawal now, I’ll pay about a $4K hit. The plan has about $8K in it. My concern, really, is the asset allocation model is completely wrong for the time frame that money is invested. I don’t need the money for 14 years, yet it’s basically sitting in government savings bonds, etc. I would expect this allocation model to be used in the immediately years before the funds need withdrawal.
So, in addition to the ridiculous fees, the asset allocation model is plain wrong giving you no hope of achieving any kind of compounding.
Given the lack of the opportunity for compounding, do you still feel the money should be left in?
9146,
Please, give us some useful thoughts or get lost!
James,
Basically, that is still up to you. There are many variables, and that is something you have to be comfortable with. You have to decide when you would move this to a low risk investment (how many years). Try to determine what return you would be getting over those later years (I would use a 3.5% guesstimate, but it is just that, a guesstimate). Then figure out how many years you would leave it in high risk investments. From there, take the amount you would be able to take out of the CST plan, and figure out what percentage you would have to earn in the ‘high risk’ years to come out ahead of what the CST plan will give you. I cannot say for certain, as I haven’t run the numbers, but you would probably find that you would need to earn 20-30% in the high risk years to break even – higher to come out ahead. (Obviously there is a lot of assuming there, but no one can see the future).
After you have run the numbers and are comfortable that you can achieve that, go ahead. If not, stay in the CST plan until it can be converted and go do something else after.
CC has stated before that it is best to stay in, and I feel the same way as well, but each person has to do what is right for them. Sorry that I can’t give you a yes/no answer, but I hope this helps.
@James: First of all, let’s make this perfectly clear. I did not advice you what to do. What I did say was you should carefully consider all your options and I urged you not to take a hasty decision. There are many variables at play here but let’s look at it strictly from an investment point of view. Can you generate better returns in the stock market that you could on the bond market on half the capital? It is possible, yes but not very likely. Just my opinion!
CC…. “consolidating the units which you can apparently do”. It sure sounds to me that you are not completely knowledgeable about group plans. Shouldn’t you know that??
Just my opinion.
@mulletman: Show me where it says in the prospectus that you can consolidate the units. That’s why I said “apparently”. You can apparently do it for some plans at some providers. Consolidating the units still means you lose *some* of your enrollment fees.
Mulletman – CC doesn’t work for these organzations, so to answer your question: No, he should not know. It’s a reasonable question.
If we’re speaking “should haves”, it shouldn’t even be a question – it SHOULD be on the website of the Group RESP as an FAQ and be done with it. The very fact that it’s a question speaks volumes about the transparency of these organizations.
@cc – Nov 17 – 6:20pm
I am quite sure that all plans allow for a conversion to a single payment plan, and it doesn’t automatically mean that some membership fees are lost. It depends on when in the life of the plan it is done.
@Geoff – Nov 17 – 6:34pm
I agree that CC doesn’t need to know these plans inside and out, and he did say ‘apparently’, which plainly says that he was unsure. I think people need to give him a break.
As far as how and where information should be published, it is in the prospectus. This is available at Sedar.com, and most investments are sold this way. This is not specific to the scholarship plan industry. These questions are what the reps should be explaining in the home as well.
As far as ‘should’ be on the website – this is an opinion statement. I will explain a bit about prospectuses, and the securities commissions. Basically, they regulate what information is to be presented, and they dictate what format is to be used to present it. The prospectuses are final result of many years and many national instruments. As well, they are always changing – every year. Each company has to have many lawyers and accountants to put the information together, to be compliant with the law. The prospectus is meant to be the ‘end all, be all’ of the investment.
Now to use what I have explained above to comment on what they ‘should’ or ‘shouldn’t’ have on their website. Keeping in mind that the securities regulators change things constantly, and the fines for not being in compliance are huge (each company has a division that is dedicated just to this.) Every bit of information that a company puts out has to be vetted by their compliance department, lawyers, and accountants. Basically, you can see where I am going with this. It is time consuming, it requires more money, it must be constantly updated, and it puts them in the possible position of not being in compliance, (If some information turns out to be inaccurate. – fines)
To say that everything that is in the prospectus should be on the website would make it very cumbersome. To put this information in a different format, where it might be misconstrued, would put the companies at risk of trouble with the securities commissions. Sadly, it is simpler to just say ‘look in the prospectus’.
Some of the companies have gone to great lengths to ensure that folks get as much info as they can, before making a decision. They do, though, have to ensure that they abide by the law. Again, it boils down to investers reading the prospectus.
CC… I’m going to base this on fact and not emotion as a lot of your readers do.
People do not tend to be specialists in everything. I think we can agree on that.
I’m going to assume CC (and the majority of readers), that you don’t replace your own brakes in your car, change your own oil, or change a leaky gasket in your snowblower before the winter.
I’m going to preface this by saying that I feel everyone is capable of doing it.
Why don’t they??? Do you know how much money you could save???
The reasons may vary….. not enough time, not confident enough, not comfortable doing it, not my area of expertise, I’d rather pay someone who knows what they are doing, etc, etc.
I do replace my own brakes, change my own oil, adjust the clutch, etc.….. and I’m not a mechanic. It’s easy. I can tell anyone how to do it. The bottom line is that there are still a lot of people who will NOT do it. They will go to a dealer (what a rip off. You go in for a simple oil change and $600 later you have a problem fixed you didn’t even know you had). Others go to a mechanic they hope they can trust.
As far as RESP investing goes, everyone is capable of setting up a self- directed plan, and monitoring it, changing the asset mix, etc. It’s easy!!! You keep telling us how to do it. Most people don’t because they don’t have enough time, not confident enough, not comfortable doing it, not my area of expertise, I’d rather pay someone else who knows what they are doing, etc., etc.
The reality is that most people go out and purchase a prepackaged RESP from a bank. They sit down with the banker and are given options. “Would you rather choose your own investments, or would you like to open an RBC Target 2025 Education Fund?” What do you think the majority of people will pick?
NAME RETURN SINCE INCEPTION (FROM WEB SITES)
RBC Target 2025 Education fund -2.1%
RBC Target 2020 Education fund 3.9%
RBC Target 2015 Education fund 4.5%
B of M Balance Portfolio RESP 3.09%
B of M Savings Portfolio RESP 3.63%
B of M Strategic Security RESP 2.89%
B of M Aggressive Growth RESP 3.16%
BNS RESP investment cash account .25%
I can’t list them all as you’ve probably stopped reading already.
I haven’t even included the annual mutual fund fees.
Go check these out……..
Welcome Back!
I’m sure group plans are no worse than these. Most folks choose these packages just like you choose the “winterizing deal” for your car. You have to trust someone right??
How in the heck does the non mechanic know what brake pads to choose from while standing in the aisle in Canadian tire? How does the unknowledgeable investor know which mutual funds to choose from when sitting in front of their banker??
You say…. It’s easy!!… and then go on to tell us why. We don’t want to fix our own cars or choose our own investments. Does that make sense to you?
Your July 16 post stated:
“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”
In your July 28 post you stated:
“It’s true that stock brokers and financial help suck away the returns”
Why aren’t people getting all upset about these. Could it be because the bankers/financial help aren’t telling the investors about these fees???? Does this sound familiar???
I don’t bad mouth the folks that go to the dealer to have their car serviced every 6 months(what a rip off). I think it’s great that they are taking care of their car. They’re told a whole pile of things by the dealer about why it’s beneficial to keep up with the maintenance schedule set out by them. What a scam, in my opinion, and what a whole pile of extra fees they are paying.
This thread, generally tends to mock us folks saving our hard earned money to help fund our childrens’ education. You say the products we’ve chosen are inferior. I don’t know any better, I don’t have time, I am not comfortable doing it, I would rather pay someone to take care of it for me.
You said it best in your Sept 23 post
“Your children will only thank you for having any type of a plan for them, no matter who it is with and you will minimize the impact on your retirement for doing so”. All I’m saying is that a SDRESP provides more flexibility and can be assembled for very low fees — much lower than those charged by Group RESP plans.
EVERY RESP PROVIDER (BANK OR OTHERWISE) IS IN THIS TO MAKE MONEY. Let’s not kid ourselves…… banks make millions off of their savings vehicles. I don’t believe your claim that RESP’s are loss leaders for them since they don’t seem to train any of their employees in the area. I would love for you to base this opinion on fact. The truth is…. you can’t.
Group RESP providers make a lot off of the fees paid to them. They claim that investors MAY get some of those fees back (no guarantee). In the mean time, the sales people have made good commissions, the executives have bought their nice cars, etc.
It is OK to say that parents are doing a good thing, even if they have invested in a Group RESP. They are saving. I know it is long term, but having asked the right questions, I believe that contributing annually, lump sum, is a great way to go. You are not locked into a contribution schedule, can stop any time you want, and yes… pay fees based on # of units you purchase.
CC, since you are very knowledgeable about Group Plans and SD plans…. shouldn’t you concede to those who are not comfortable with SD plans (and yes there are a lot of us out there) that our choice is still OK… as per post above. Shouldn’t you be giving us strategies on how to maximize our flexibility within the group plan such as annual lump sum contributions and conversions after x number of years, etc. You claim to know more than the sales reps involved in these plans. You’ve provided advice for those already in a group plan… but only for planning a route to getting out.
I know you don’t believe in them, just as I don’t believe in bringing your car to a dealer but if they are, then a different set of advice applies…. don’t you think?
@yakker: I’ve always said that parents who have already invested in Group RESPs and for whatever reason wanted out, to consider if they are making the correct choice. I find it grossly unfair to suggest that all I do here is plan a route for getting out of a Group RESP. If you’ve already signed up, you’ve already paid the enrollment fees — the biggest cost of a Group RESP. Getting out would be costly and there is no guarantee that your portfolio can recover. However, there is a risk in staying in too. If your contribution schedule is affected, you may lose a big chunk of your education savings. Or, as some Group RESPs participants found out, your child may enrol in University only to find that they will not be receiving all their payments. Can you tell me how either of the two is an ideal outcome?
To me, the costs of a Group RESP and a high-MER bank mutual fund are comparable. But even a high-MER bank mutual fund is preferable IMO (and I say this as someone who can hardly expect Christmas cards from high-MER funds) because anything you put in is yours and yours alone. That’s not how it is in Group RESPs. If you are among the unlucky ones who couldn’t collect some or all of the benefits, you’ll be sorely disappointed.
You raise a good point: What if a parent is unwilling for whatever reason to not manage their own education savings? Well, they can invest in the lowest-cost fund they can find. Or, they can simply invest their contributions in a GIC. Even those who have no interest in managing their own portfolio have other options. I’ll never concede that parents would be better off with a Group RESP because life is too uncertain to know for sure that someone will get the full benefits of a Group RESP ahead of time.
@cc: While I in no way support the other folks with their meanness towards you, I can in part echo some of the feelings that they have. Basically, you do try to come off as an expert on group plans, and then slam them pretty hard. I will go out on a limb and say that I probably know them quite a bit better than you, and I happily place my children’s savings in them. You constantly say IMO for statements you make, but easily discount, ignore, and pretty much belittle people whose opinion differs from yours.
A high-MER bank fund is much more expensive (even before the return of membership fees) and IMO is not preferable. The returns on GIC are very low, and I do want some return on my investment. I am not a fan of the stock market, for reasons I will not go into here. I am not the only one. The majority of the largest funds in Canada are fixed income. I would say that more people like their money safe, than those who like risk.
As to James on Nov 12, ‘the asset allocation is wrong’ – that, as well, is an opinion statement.
I personally am quite happy with my investment, and I understand it fully. The amount of information on this website that is incorrect is huge, and causes a lot of uncertainty. IMO, GIC’s are a bad idea for an RESP, and so is the market. Am I not entitled to this opinion? Am I wrong with this decision for my family? I think that this is the part that is bothering some of the folks that post here – the fact that you discount as ‘wrong’ the choices you wouldn’t make.
Again, there are many companies out there, and some of them have had many plans over the years. I am really tired of people looking at the inflexibility of some of the companies’ older plans, that are not being marketed today, and using that as a reason to not look at the newer, more flexible plans. CC, you keep alluding to ‘not getting your money’ or some such thing. All of the plans marketed today have an ‘individual’ option that works EXACTLY (and in some cases more flexible) like a bank plan. Where is the lack of flexibility there?
I like the group plan my family is in. I like where and how my money is invested. I am very satisfied with the returns. I did a lot of research, and this is what I purposefully chose for my family. I prefer this option over GIC’s or money market funds. I invest what is comfortable, and have no issue with what I am putting away. I like the possibility of my children getting attrition, and the possibility of a return of my membership fees.
I also want to correct your ‘everything you put in is yours’ comment when it comes to mutual funds. The MER’s are taken off growth and principle. As well, if the fund is actually negative when you decide to pull the money out, guess what. Some of it isn’t yours because it is gone. To say that I put in $10,000 into a mutual fund and I am guaranteed to pull out $10,000 in principle is absurd. Your statement suggests that this is the case. Again, there are fees taken off, and it is possible to lose money.
I agree that life is uncertain, but I can state that I know the minimum and maximum payout options of the plan that I am in, and I am very comfortable with them. If my children get the maximum benefit from the plan – great. If they get the minimum, I will still be farther ahead than the other options I was considering.
Again, I am happy with the decision I have made. The people who are posting here, about your inability to even suggest that we have made the right decision for our own families; I guess kind of bugs us. It is in no small means condescending, and while you keep saying IMO, you in no way show respect for those of us who have differing opinions. I in no way feel that you will ever like group plans, (and this is not the intent of this (or any other) post), but your comments seem to deliberately belittle those of us who do. I guess all I would like is for you to respect my educated and informed decision for my own family. This is (I think) a similar idea as what yakker posted, and you immediately followed up with your opinion, again discounting his. To quote ‘I’ll never concede that parents would be better off with a Group RESP’ – here is a parent saying he(she) is, and here you are belittling them. Are you now going to post how wrong I am, and that my family would be much better off with one the choices you like. What arrogance. You don’t know anything about me, my family, my financial ability or education – yet here you are saying that you cannot ‘concede’ to say that my decision is the best for my family. Wow – sure would be big of you to concede that I might know what I am doing, and that I made the best decision for my family.
@geoff
@cc
As far as the “conversion” goes….. I just thought that something mentioned in this post since oh……2009 might have peaked the curiosity of CC. It is something the readers obviously are interesteed in.
For someone who knows more than the sales reps, I just thought they may like to take that couple of years to do a little research.
In last day’s post to yakker, you state that “Getting out would be costly”, yet you do not give the option of the conversion where there is minimal cost to the subscriber…… AND they get out of the group plan should that be their wish.
From what I hear, agents actually like this because then they can sign the parents up for yet more units in the plan and earn yet more commissions. But since you claim to know more than most agents, you would already know this.
I know you like to be informed so please do some research on this and tell the world!
Although I like how Mark does engage in meaningful conversation and really do believe he believes what he’s saying, I have to ‘follow the money’ – CC’s income is not dependent on either people signing up for bank funds or group funds, while Mark’s is. That alone makes CC’s opinion more independent, in my thinking.
I will say, as a father, I have found this thread of great value and think that we can go back and forth a million times but for the casual reader, I think it’s been a great help to find out about the differences of resps. I also think that if salespeople and highly educated finance people can argue about the rules of group resps that alone makes me suspect of the whole industry, but that’s my opinion. I’ll also say that when I was sleep deprived my first week of being a dad, it wasn’t calls from a bank about an RESP that I was dodging, it was calls from Heritage group resp. Talk about going after the weak sheep. Mark would say rightly that that’s just one group RESP and not all of them. Fair enough. But a bad taste in my mouth is a bad taste, none the less.
The last thing I’ll say is that this blog is free and CC’s opinion is just that, his opinion. Sure, it’s a reasoned, educated, well expressed opinion that is clear, concise and helpful, but it is just opinion. Even CC can’t predict what the DOW will be at 2019. Your mileage may vary.
Hi folks,
I’m new to this post…. I was told about it by a co-worker.
I have two registered plans…. one RESP and one RRSP. Let me start by saying I don’t know the first thing about investing.
I went and took the advice of one of these threads 10 or so years ago and tried my hand at my self directed RRSP….. I failed miserably. I lost about $3000 in 2 years. I decided to get some professional help…. although I may have need psychological help for attempting it in the first place, I sought professional financial help. She managed to make me about $500 in 3 years. It worked out to be just under 2% per year. So I decided to try someone else…. a bank. That whiz kid added another whopping $700 during the next 3 years. That translated into a very low % as well. Since then, I switched again and have actually lost principal during the last 2 years. As you said to yakker above, “Can you tell me how either of the two is an ideal outcome?”
Did I mention that I know nothing about investments…. I just don’t have the brain for that.
Pity the poor people who have their RESP’s with those professionals or pity my kid if I had tried it on my own.
I decided on a group plan. Couldn’t be happier with that choice. I started a bit late but am now paying my kid’s way through college. He is not going the full 4 years so I am not getting the full “discretionary” payments you mention or I’m not getting back some of my membership fees. I am still way ahead. Way further ahead than if I would have stuck with those other yahoos. Do they have group RRSP’s by any chance??….lol
From what I can see, even after the 20% government grants I still earned a good amount of interest while preserving my principal. Woohoo!
Fees are fees…. ain’t everyone in it to make a money? If I could count the number of times I’ve overpaid on my cell phone plan for features I don’t use or trying to get out of a contract.
So with all the respect that you deserve Cdn Cap…. you’ve really gotta cut these group plans a little slack. They have a place in the market…. one of those places is with my family. I admit ignorance to investments, distrust the so called professionals, and stick with the folk who deal with these things exclusively.
God knows not everyone likes, or respects “professional wrestling” but it still seems popular with a certain segment of the market.
@Mark: Of course, parents have every right to choose what is right for them and their children. And if they decide to choose Group RESPs, well, I do wish them good luck and sincerely hope they’ll get the full benefit out of it. What I’m unwilling to say is that if a parents doesn’t want to go the self-directed route, a Group RESP is the best option available to them when I know that there are much better alternatives for most people. (because that’s what yakker asked me to concede).
It is perhaps not surprising that Group RESP salespeople will congregate here singing the praises of the product they are selling. You suggest here in all seriousness that GICs are not a good choice in a SD account when you know fully well that Group RESPs are invested in pretty much nothing but bonds. Pray tell us, how would a Group RESP’s returns be better than GICs when both are invested in assets that have similar returns?
@mulletman, @troop, @yakker: I’m not going to bother to respond to you anymore because I believe you are the same person commenting here from the same IP address. Likely another RESP salesperson.
@Geoff: Even among friends, I haven’t always been successful in convincing them to go the self-directed route. All we can do is point to alternatives. Then the parent makes a choice that they are comfortable with but at least we’ve helped them in making a more informed choice. Whichever route they choose, we can only wish them good luck.
@ CC -Why would group plans exceed gic returns? Because their “returns” include the money that parents who have dropped out have forfeited. That alone is so distasteful to me – that I take my neighbour’s money because they fell on hard times and couldn’t keep contributing — thereby compounding their difficulties. That blows, Mark, Troop, Yakker, etc etc and I will never change my mind on that point.
@Geoff: It is true that group plan returns are enhanced by attrition. However, these additional returns are eroded by the expense structure of these plans. Whereas if I go to any discount broker and buy the best 5-year GIC rate available today, I can get a bit more than bond yields and pay no other expense other than the $50 annual admin fee for the RESP.
http://www.canadiancapitalist.com/the-mer-on-group-scholarship-plans/
There is another problem with attrition. Without attrition, Group RESP plans would be unable to claim returns comparable to what we can achieve on our own with low-risk investments. That gives vendors an incentive to structure their plans so that attrition takes place. A CBC report recently said that it is low income Canadians who are hit hardest by attrition. I wouldn’t want any part of money that lower-income Canadians were trying to save for their own children either.
Too many posts to direct answers to individually, so I will do a shotgun approach to them.
First of all, yes, I represent an RESP company, but that doesn’t mean that I have to invest with them for my own family. I could do something else, while still representing them. The reason that I do represent them is because I chose them after researching for my own children. I do know that they are the best investment out there for most families. (Obviously, this opinion flies in the face of some other peoples’ opinions, but at least I let it be known as an opinion, not try to present it as a fact.) To discount what I say because of what I choose to do for a career is unfair, and in some ways silly. On these posts I try to present as much factual information as possible, which people can use to help them make decisions. If someone wants to prove me wrong, feel free to, don’t just allude to the fact that because I represent a group plan company that what I post cannot be trusted. To the contrary, because I am trying to do my best to ensure that everything I say is true, I tend to reread and edit these posts to death, because if I slip up on any one fact, I assume that you folk will tear me to shreds.
I had tried in the past to use actual returns to show the point when discussing this on the internet, but everything I posted was ignored. Look at how many people comment (incorrectly) that the returns posted by scholarship plans are ‘enhanced’. This is not true. The returns posted in their prospectuses, and Managers Report on Fund Performances, are before any benefits from the non-profit foundations that manage the investments. I am quite sure that they now all report after all fees taken as well. (Pretty much the same as any fund out there.) I am quite confident that if I did the work of reading all current prospectuses, posting all of their current, 5 year, and 10 year returns, most (all?) of them would beat the current, 5 year, and 10 year returns of GIC’s and Bonds. I contend that I could do all that work; only to have you folks discount it as trickery, or some such stuff. I don’t feel that is worth my time. I will say that I recently looked at the most recent Canada Savings Bonds, and GIC rates, and feel it is fair to say that they are returning around 0.8 to 2.7%. Please correct me if I am wrong. Considering that banks make 51% of their revenue on the spread, I really don’t feel that they are giving me a good deal.
Anyone who is interested can feel free to go to sedar.com and read in each company’s prospectus to see how they are comparing against that. Again, I don’t feel the need to do the work – I have already done it many years running and have never once felt that my decision was wrong.
If the group plan has a better return (remember – after fees) than a GIC or Bond, and I have the possibility of a return of membership fees, and the possibility of a bit of attrition, I actually like that option. Again, no one can say where the market will be in ten years, and no one can say where bonds will be in ten years. What we can look at is how, historically, these plans have performed against the other safe investments.
(Before I talk about returns, I want to preface it with something. Each group RESP company is different. While past returns are not necessarily indicative of future returns, some companies have consistently outperformed the others. During this part I will lump all group RESP plans together, but I do personally feel that some are better than others in quite a few ways. Do your research. I am doing this for simplicity’s sake.)
To CC and his constant comment that investing in a group RESP is the same as investing in a bond fund, or GIC, is something that shows a lack of understanding of how these things work. Hence the questions as to why someone can expect a similar or better return in a group RESP than in a GIC, etc. There are quite a few reasons, and one of them CC has already pointed out in another post. I find it amusing that it appears to have been ‘forgotten’. Some of the group plans are allowed to invest in structured notes, which are guaranteed by the bank issuing them. So while they are safe, they might return better than the fixed income investments do. I say might, because unlike CC, (for example – “Group RESP plans would be unable to claim returns comparable to what we can achieve on our own with low-risk investments.”) I don’t make assumptions and present them as fact. While I like the fact that these structured notes are guaranteed, I again am not a fan of the market. There are other reasons why they have better returns. Basically, it has to do with what these funds are set up for. To compare to a bond fund, for instance, is not comparing apples to apples, because a bond fund can not take the long term approach to investing that group RESP plans can. Half of the people in a bond fund might pull out their money next year, and the bond fund will then have to sell some bonds prematurely to create the funds to allow this. (Because of this, they generally don’t ‘lock in’ too much of their money long term.) The group RESP, by its very nature, has a benefit that other funds do not have – they have a pretty good idea of when their investors are going to need their money. Because of this, they can make long term investment choices not available to other fund managers. As a matter of fact, group plan fund managers can take advantage of other funds that have to sell bonds at a discount, as well as buying strip bonds. A group plan fund never has to ‘liquidate’ an asset before maturity, so it always gets the full benefit of the investment decisions it makes.
Basically, I invite people to research the returns for themselves. If the returns of the group plan outperforms the GIC’s, and bonds, over the one year, 5 year, and ten year time periods, there has to be a reason for this. (Again, remember that these returns are posted after fees, not before, as some people have alluded to.)
When it comes to the membership fees, I prefer to just think of them as a front end load fee. There are other funds out there like that, some of which you need a minimum of one million dollars to invest into. The fact that I, as an investor, might get a portion or all of it back is just a bonus if I get it, not the reason I invest.
As far as to the comment of sales reps and other people fighting about how these things work, I don’t know how anyone can claim that. I have been ‘fighting’ or ‘arguing’ – I have been explaining. I have no illusions about any of the other investments available, and I know these group plans inside and out. To suggest that I have been fighting or arguing suggests that I am unsure of my position, or the facts that I use to back it up. To make that quite clear – I am not on both points. I might be making a very broad statement here, but I don’t think I have read anything on this post that is factual, that I didn’t know before.
I don’t have the time to correct everything on this page that is incorrect or inaccurate, so I try to hit the ones that are the most common. One ‘fact’ that I haven’t had the time to weigh in on yet is CC’s article about the ‘true costs’ of a group RESP. While I always comment on how I respect CC’c research into these things, and that he is probably more educated that most of the people who post here, I don’t agree with the philosophy behind his article. He did good math, and he even sent me the spreadsheet that he used to calculate it, and I can say that his example is quite sound. What I don’t feel is an accurate picture of the true costs of an investment is his discounting of the return of membership fees, based on inflation. I would say, and I think most financial professionals would as well, that he posts the true costs before he states his 2.15%.
He shows that with a full return of membership fees, the cost are around 0.95%.
He shows that with a 50% return of membership fees, the costs are around 1.25%.
He shows that with a 25% return of membership fees, the costs are around 1.60%.
The difference between what I would have without fees, and what I have with the fees, is the true cost of the investment.
Another point that keeps getting brought up here is the attrition aspect. Simply put, the government did not set up an RESP to be used like a piggy bank. If money is taken out of an RESP, and the Accumulated Income Payment option is not available, what happens to the interest that was earned on that RESP? At a bank or mutual fund, that interest has to be donated to a post secondary institution. In the case of a group plan, they are allowed to keep it, because their investment is run by a non profit foundation. (That is why they have them, by the way) As some people have pointed out, group plans offer a payment schedule that is simply one contribution. I have many clients that do this. To suggest that a group plan can be deliberately set up so that there is more ‘attrition’ is an interesting comment, but I would suggest that it cannot be backed up by any facts – it is just that, a suggestion.
Again, I cannot answer every misconception out there – all I can do is suggest that people research, read the prospectus, and ask a lot of questions before they make a decision. Whatever you decide, use your brain, and be comfortable with the decision that YOU make, for your family. Don’t let anyone push you into it. I personally explain this all very well to the people I sit in front of and I constantly get asked if we do RRSP’s. Some people would invest all of their money with us, if they could.
“I am quite sure that they now all report after all fees taken as well. (Pretty much the same as any fund out there.) I am quite confident that if I did the work of reading all current prospectuses, posting all of their current, 5 year, and 10 year returns, most (all?) of them would beat the current, 5 year, and 10 year returns of GIC’s and Bonds.”
RESP plans account for administration fees (typically 0.5%) and portfolio management fees (0.05 to 0.1%). The plan returns *do not* include the effect of enrollment fees. They do not include the effect of attrition either or adding back nominal enrollment fees when the children go to University.
Let’s look at the claim that RESP plan returns will be markedly different from that of bonds.
CST’s returns according to their own prospectus (http://www.cst.org/site/cst/assets/pdf/2010EngProspectus-0607.pdf). Bond returns in brackets.
3 years: Plan return = 3.7% (Bond return = 5.1%)
5 years: Plan return = 4.4% (Bond return = 5.5%)
8+ years: Plan return = 5.3% (Bond return = 5.8%)
Perhaps, Heritage will be different. Let’s take a look (http://www.heritageresp.com/pdf/2010HeritagePlansProspectus_English.pdf):
3 years: Plan return = 4.45% (Bond return = 4.97%)
5 years: Plan return = 4.89% (Bond return = 5.09%)
10 years: Plan return = 6.96% (Bond return = 6.55%)
See how closely RESP plan returns track that of bonds? Why is this surprising when the majority of RESP plan portfolio is invested in provincial and federal bonds (81.7% in the case of CST and 76.2% in the case of Heritage).
“I will say that I recently looked at the most recent Canada Savings Bonds, and GIC rates, and feel it is fair to say that they are returning around 0.8 to 2.7%. Please correct me if I am wrong.”
Glad to clear it up for you. The interest rate on a GIC is the return you will earn in the future. Guess what? Government bonds are also yielding about 2.7% today. That’s pretty much what you’ll earn in the future. You don’t have to take my word for it. Here’s what the Heritage prospectus says: “However, with persistent low interest rates for cash-like securities and little room for interest rates to move lower, the amount of interest income investors can generate from these investments in the near future may be limited.”
“To CC and his constant comment that investing in a group RESP is the same as investing in a bond fund, or GIC, is something that shows a lack of understanding of how these things work.”
So, we finally come to how Group RESPs miraculously able to turn water (a bond portfolio) into wine (higher returns than GICs or bonds). Mark says they invest in (a) structured products and (b) superior long term investment choices. I haven’t forgotten at all that Group RESPs invest a part of the portfolio in structured products. It’s just that it is too small to make a difference either way. CST has 15% in these products; Heritage 14%. That’s too small to make much of a difference to a portfolio and past returns I’ve posted about prove the point. As to the alleged superiority of a Group RESP portfolio, I’ll let the numbers posted earlier do the talking.
“Another point that keeps getting brought up here is the attrition aspect. Simply put, the government did not set up an RESP to be used like a piggy bank. If money is taken out of an RESP, and the Accumulated Income Payment option is not available, what happens to the interest that was earned on that RESP? At a bank or mutual fund, that interest has to be donated to a post secondary institution.”
For someone who says he knows everything about RESPs, you are totally mistaken here. Here’s what happens when you withdraw money from a bank RESP:
http://www.canlearn.ca/eng/saving/resp/faq.shtml#m
I want to address the non-sense about “non-profit foundation”. A mutual fund is non-profit too. i.e. the mutual fund assets belong to unit holders. It is the companies that extract the fees from mutual funds that are for-profit concerns. Guess what? It is exactly the same with Group RESP vendors. Yes, the plan itself is non-profit. The people sucking the fees out of the plans are for-profit entities.
Why leave out USC? Here is their returns according to their prospectus (http://www.usc.ca/public/csp/37/default.aspx):
3 years: Plan = 4.3% (Bonds = 4.9%)
5 years: Plan = 4.7% (Bonds = 4.8%)
10 years: Plan = 6.4% (Bonds = 6.4%)
USC’s asset allocation is 97% Federal and Provincial bonds.
CC – this is fun – I knew you would do the work.
First of all, one thing I want to stress is that you have consistently mentioned bonds and GIC’s as if they have historically given the same returns. What I have seen, consistently over the last few years, is that historically GIC’s returns beat Canada Savings Bonds, but track well below (over 1%) that of bond funds. I just point out that you here are comparing RESP fund returns to that of bond funds, but a few days before suggest that investing in GIC’s would be the same. Historically, that has not been the case.
We agree that the membership fees do affect returns, which has been talked about here a lot, but we also can agree that there is also the attrition and return of membership fees that we are leaving out of this discussion of returns.
I knew we would be having this discussion, which is why I was careful to mention that these plans have the component that is invested in structured notes. I was also clear as to my opinion of them. You are right, the amount that they have in structured funds (percentage wise) is not huge, but I would disagree that it doesn’t affect the returns. Let’s look at Heritage’s one year returns, for instance. (The one year is the only current return that breaks down the affect of the structured notes on the total investment.) I will note that I had said that I would show the current (one year), 5 year, and ten year averages, and you chose to show the 3, 5, and 10 year.
Heritage one year return = 4.31% – DEX Universe All Government Bond = 1.57%
If you look deeper, which I always do, you will see the affects. Just below these figures, I am sure that you would have read that the Heritage 1 year return on the fixed income portion of their investments was actually 5.41%. The Structured notes, which in your opinion cannot influence the overall return much, were at (1.51%). As you can clearly see, this portion that you claim cannot influence the returns at all brought the total returns down by 1.1%. [5.41-1.10 = 4.31] To me, and again this is opinion, that is a fair bit. To extrapolate this out, the funds exposure to the market through these structured notes has negatively affected the total returns quite a bit. This year (2009) did not do near as much damage to the total returns as the past year did. I can let you know that the funds exposure to the market through these notes has significantly affected their total returns. (only to the negative) The fixed income portion of these funds, as can been seen here and historically, have significantly out performed the average of the bonds. I feel that does prove my previous post as correct. Again, I am not a fan of the market, and wasn’t thrilled when the funds started investing in them, I am hopeful that they (the structured notes) can in the next few years reverse the damage they have done to the funds total returns, which will bring them back up to much higher that the bond average.
Again, when I mentioned what GIC’s, and Government bonds were returning, I did mention that it was the future returns. This is all the more reason, in a low interest investment, to try to get the highest return that I can get. I won’t go into too much detail here, but you keep mentioning that a family should go and get a GIC. First of all, it is the ten year bonds that are near the 2.7%, and the GIC’s that are starting at the 0.7%. You keep suggesting that families go out and invest in GIC’s. Well, you and I know that the rates here can vary quite a bit, and it pays to look around. One thing to note is that most people can get a better return by ‘locking’ in the money for a longer period of time. Keep in mind that 18 years is usually how long a family will likely be comfortable with locking the money up. Basically, they can lock it up in a 5 year GIC, and do this three times. At the child’s age of 15, it would be silly to roll it over into another 5 year GIC. Simply put, when the investment can earn the most (compounding wise) it will probably be earning the least(interest wise), because it will probably be in three year (or less) GIC’s. Again, I see no comparison in benefits between a GIC and what a group RESP will probably do.
As well, as far as turning water into wine, (nice reference by the way – quite cute) I again say that historically the fixed income portion has outperformed the bonds easily. I refer to my previous post as to how they achieve that. Again, I am not looking for huge returns from a safe investment, but if I can get 1% more, I will take it.
Now, CC, sorry to take away your ‘aha’ moment, but you and I have already posted numerous times about the options that a child has if they decide not to pursue a post secondary education after high school. It is the same with banks and group plans, where the family can use the Accumulated Income Option. In a family plan at a bank another child can use the money, but group plans have always had the option to transfer to a sibling. Some group plans also offer the option to transfer it to a different child (not related by blood) or the parents themselves can use the RESP. These last two options are not offered through a bank. But I am rambling. What I suggest is that you reread my previous post. I was not commenting on what happens to the money when a child decides, after high school, not to pursue post secondary education. I was commenting on what happens when a family pulls money out, closing the RESP, before the child is 18. What happens, for instance, when they pull the money out when the child is 8 years old? Here is where it gets interesting. And for the record, yes, I do claim to know a lot about RESP’s, and in my previous post I was in no way mistaken. What I said is that if the conditions are not met in order for the family to do an accumulated income payment, then the bank, by law, must donate the income to a post secondary school. I forgive you for not knowing this CC, as most people who deal in RESP’s are totally unaware of this, but I can assure you that it is 100% true. So to the point of mutual funds being identical to group plans, this is obviously untrue. The income tax act allows the non profit foundations to keep this interest because they are registered as non profit entities under the income tax act. Mutual funds are not. Period. This is a big difference, and I just wanted to clear that up. I dislike that folks at banks make it seem like the family can pull out all of their money after a little while, without any negative complications. Again, the way the income tax act has structured the RESP, it is not intended to be used as a piggy bank. Lots of options are available if a child decides not to go to school, but any RESP is not intended to be yanked out to buy a car when the child is 9 years old.
Again, I know these things quite well, and I am very confident that the decision that I made for my family is the rigth one.
This has been fun – cheers.
@Mark: We are talking around in circles and I’m going to stop the discussion here because it’s becoming pointless. You have a touching faith in the ability of Group RESPs to deliver returns better than bonds or GICs. It is also totally mistaken. I hope you’ll come back in 5 years or so and let’s compare notes.
You go on and on about return of membership fees as if it’s such a great deal for parents. News flash for you: enrollment fees are the biggest cost of participating in a Group RESP even with full or partial return when the child attends university. A parent starting up a RESP for a newborn and planning to contribute $2,000 per year buys roughly 19 units at CST. She pays $3,800 in enrollment fees. The child will be returned a “guaranteed” $1,900 of the enrollment fee *after 18 years* if she goes to school and collects full benefits. But she will not receive any income that the $1,900 could have generated for those 18 long years. $3,800 is a lot of money. It can buy a lot of a la carte financial advice from independent financial planners who have no incentive to push product. Of course, RESP salespeople will pretend that this is such a wonderful deal for parents. Quelle surprise! I would likely do the same if my livelihood depended on it too.
@CC: You are right, we are going around in circles, and neither one of us will in any way change the other person’s mind. How, though, can you fairly “stop the discussion here”, and then go on to add more opinion?
I do find it interesting to note that, again, you state an opinion, as if it were a fact.
“….better returns than bonds or GIC’c. It is also totally mistaken.” That is opinion. If we had talked 5 years ago, right now I would be saying, see, I told you so.
As far as faith goes, I don’t think so. Faith is a belief in things that are unseen/unknown. I have a belief in what I can research and know right now. I would comment that it takes faith to believe without a doubt that in the future you will have great returns out of the market. (As someone said earlier, “what the market gods will give us.”)
You can read my posts to confirm, but I would have to say that I don’t go “on and on” about the return of membership fees. I only mention it when it is pertinent. As I have always said: if I get it, great, if I don’t, I will probably still be much farther ahead. I again refer to your own post regarding the true cost of the membership fees/total fees of a group RESP. I understand it and am comfortable with it – It is not rocket science. That you allude to the fact that I “pretend that this is such a wonderful deal for parents” I find a tad unfair. To be fair, when I sit down with a family I show them the option if they receive no benefits from the non profit foundation, as well as the option if they receive all the benefits from the non profit foundation. You are insinuating (wrongly) that I sit in front of a family and only show the ‘big payout’ and all of its benefits. I show both, so the families can see the difference. Obviously, this also shows the total effect of the fees. Your posts make me feel that you think that I walk around only showing families the option of their child getting the full benefit from the non profit foundation. I show both, so that families can get a full picture. My clients get much more information from me than they probably would anywhere else. I am sure you have already noticed, but I can go on for days about financial matters, and into great depth. I don’t leave people trying to figure things out on their own – I explain everything.
Again, it is easy to discount what I post here, and my opinion, because I work for a group resp company. Just mention that fact, and then discussion is a moot point. I prefer to say that you have your opinion, and I have mine. Again, I invested for my children before I started to work for them. I did the research and very much liked this option for my family. We can talk in circles until the cows’ come home, but I can assure you of one thing. When I have grandchildren, I will set them up the day they are born with the company I represent. If I in anyway thought one of the options that you propose to be better, I would set them up with that option, but I don’t. I can assume that you will throw your grandchildren’s’ money in the market? We will both do what we think is best for our families, and only time will tell what they will end up with. Again, our personal opinions will dictate what decisions we are comfortable with.
I did want to clarify another thing that I feel you may have been misleading people to believe. (I don’t think that it was intentional; more an error of omission.) The group plans compare themselves against an index. You and I both know that this is not an actual return that an investor would have actually seen. Even if they had bought a bond etf that was tracking that index, the actual return that the investor would have experienced would have been decreased by that etf’s management fee. Let’s let people compare apples to apples.
To quote CST’s MRFP:
“For 2009 the Plan’s rate of return, net of fees, was 5.3% versus an investment policy benchmark of 8.9%. The return on the Government and Corporate Bonds component of the Plan was 9.5%, outperforming the benchmark, and the return for the Variable Rate Securities component was -5.3%.” (Again, their bond portion beat the index; it was their exposure to the market that brought it down. If you will note, it brought the total return down by quite a bit, again disproving your belief that the percentage of the fund that is in the market is too small to affect the total returns.)
“The benchmark used for the Plan is the DEX Universe All Government Bond Index. This index measures Canadian investment grade fixed income securities issued by the Government of Canada . . . Investors cannot invest in the index without incurring fees, expenses and commissions, which are not reflected in the index returns.”
Again, just to be clear, what they are measured against is an index. Yes, I feel historically, the choice that I have made compares very well against that index, especially considering I would shave off a few basis points just to invest in it on my own. The recent returns of the structured note aspect of these plans actually prove my belief that the market is not where I want my money to be. If anything, these plans have been hurt by their exposure to the markets. Had they stuck to their original investment strategy, we wouldn’t be having this conversation, because their returns (bond vs bond) would be clearly higher.
It has come to my mind that the reason that we are having this discussion is due to a different set of opinions as to what ‘better’ returns might be. I am comfortable if the plans return 0.5 – 2% higher than the benchmark. I think that you would need to see something way higher, to offset the parts of the plan that you don’t like. I don’t. I know it is risky to try to ‘guess’ what you are thinking, so I apologize if I am way out in left field.
Again, I have been looking at these plans for many years. Nothing that we are discussing now is new to me. I know the full effect of the fees, I know exactly how the plans work, and I know all of my other investment options. Again, everyone is entitled to their own opinion.
@cc,
from your post of Nov 19 “@mulletman, @troop, @yakker: I’m not going to bother to respond to you anymore because I believe you are the same person commenting here from the same IP address.”
You should really check your facts……. the reason we all have the same IP address is because we all work in the same building. Each of our computers does have an individual IP address, but it appears to the outside world as an identical one because you are picking it up from a common router leaving the building.
Hope that clears things up. We are all co-workers making good points.
A few years ago, after learning our son the extent of our son’s disabilities, and coming to accept that he would never, ever, be attending a post secondary school, I called in to speak to Heritage Scholarship Fund. Their customer service agent, who’s name I did not get-biggest mistake ever, assured me that due to his disabilities, including mental retardation, that ALL our money we had put into this would be returned. I was forwarded the paperwork, signed and returned it, and received less than half of what we paid into it.. many phone calls later to many of HSF agents, and salespeople, I was treated like an idiot and told that I should not have signed anything, but transferred the units to our normal child. By far, this is one of the many highlights of my career of being a mom to a special needs child and dealing with ignorant people and companies. Now, with our son graduating this coming year, I have discovered that Heritage Scholarship Fund is a total RIP OFF, and he will not be getting as much as we were promised. But, at least I have the likes of facebook and twitter to warn all my friends & clients who, by the way, most of waited till later in life to start their families! Who in turn will do the same!
LOL
Just received this helpful investment advice in an email from CST:
For example, a Plan opened for a newborn in 2010 with contributions of $100/month for 17 years, will be worth approximately $42,807 at maturity in 2027 (includes Principal, Education Assistance Payments, CESG Grant and Grant Income).* Adding just $200 more each year, over the life of your Plan, increases its total to $50,103 at maturity!* That’s an additional $7,296. Plus, if you live in Quebec or Alberta – you have access to additional Provincial Grants that can increase your savings even more! So when they’re asking for gift ideas, consider your RESP.
This fineprint appeared at the bottom of the email:
*Total worth includes:
• Principal includes contributions made less enrolment fees of $200 per unit and annual account maintenance fees plus applicable taxes.
• Education Assistance Payments (EAPs) are calculated based on the 2010 payout per unit. Calculations assume that the beneficiary collects all available payments. The value of EAPs is based on three factors that can’t be predicted: investment return, actual number of payments collected, and discretionary payments from the Canadian Scholarship Foundation. Discretionary payments in any given year are not guaranteed and you should not count on receiving them. The Foundation decides if it will make a discretionary donation each year and what the amount will be.
• Government grant – basic Canada Education Savings Grant (CESG) only; based on criteria set out by the Canada Education Savings Act (CESA)
• Grant income earned is based on the long-term expected net investment return of 4.85%.
• Enrolment fee refund. The illustration assumes a 50% return of enrolment fee (which you may be eligible to receive). Please see the terms of your agreement for more information.
NOTE: This example is an illustration for group plans only. Past performance is not necessarily indicative of future results.
The CST Plan is only sold by prospectus. Investors should read the prospectus before making an investment decision because it includes important detailed information. You can get copies of the prospectus from http://www.cst.org or by calling 1.877.333.RESP (7377).
The Canadian Scholarship Trust Foundation is the sponsor of the Canadian Scholarship Trust Plans which are exclusively distributed by C.S.T. Consultants Inc. ©2010 C.S.T. Consultants Inc. All rights reserved. Privacy Statement
In Quebec, Canadian Scholarship Trust Plans are distributed by C.S.T. Consultants Inc. Scholarship Plan Brokerage Firm.
All individuals who are disgusted with the CST plan should immediately withdrawl. My children will appreciate the increased payments.
I too signed up when I was young and dumb and didn’t have a clue.
Who’s signature is on the papers? Mine and my wifes.
Was I provided with the prospectus? Was I held at gunpoint and forced to sign? Was I unable to think for myself?
Everyone wants to blame someone else for their bad decisions. The best lesson to learn, is to realize that we are responsible for our bad decisions.
As a previous poster said, “If you fail to plan, you plan to fail.”
FROM THIS POINT FORWARD, RESOLVE TO MAKE EDUCATED DECISIONS.”
@ Schmotlzie – This posting (gotta be the most active on this active site) is all about making educating decisions.
I tend to take people at their word so when you say you ‘signed up when you were young and dumb and didn’t have a clue’ – I’ll have to assume that’s why you accept the extreme likelihood of subpar returns and extremely controlling terms and conditions.
I really do suggest you re-read the terms and conditions – it seems pretty clear that disbursements are at the discretion of the board – so keep that in mind as you wish for others to just drop out and forfeit their kid’s education funds because they made one bad, likely sleep deprived decision after being provided bad advice by their ‘advisor’. (Real nice by the way).
Ellen Roseman covered Group RESPs in her weekend column:
RESPs are easy to start and hard to leave
The column reports actual investment returns of a CST subscriber who contributed $2,000 for 10 years:
Principal = $17,087.59 (appears to be $20,000 less enrollment fees)
CESG = $3,993.46.
Income on the principal = $3,188.44.
Income on the CESG = $1,065.69.
The CAGR over 10 years is 3%. You’ll find advisors like Mark on this very thread claiming how Group RESP providers can magically get high returns. The actual returns show otherwise.
@Schmoltzie: We are all for taking informed financial decisions. But you have to wonder: why do we hear so many complaints about Group RESPs and not competing RESP accounts? Maybe, the subscribers who complain have good reason to? Just food for thought.
Geoff – Yes, I accept the likelihood of subpar returns. What I can not accept is withdrawing from the fund once I realized the consequences, and getting a negative return. This is what I call compounding bad decisions, kind of like compounding interest, but in reverse.
On a side note, I anticipate subpar returns in many categories of the market for probably the next decade, at least in N.A. markets. I have a feeling that 3 – 6% won’t look so bad by 2015.
CC – I don’t think all are for making informed decisions. Few are for making informed decisions, and many are for making uninformed decisions, and then blaming everyone for their poor choice.
I enjoy reading the many thoughtful posts abouts the pro’s and con’s of different options, and I am amazed at the detailed number crunching by several posters. This forum has inspired me to continue improving my research and decision making skills, because in the end there is only one person that cares about my money and my family.
[...] Is a Group RESP Plan Right for You? By Canadian Capitalist [...]
I just signed an agreement with Heritage and now I’m having second thoughts. Is it a problem to cancel? We have not yet paid anything, but like I said we did sign the papers.
Pul,
If you haven’t paid any money, there is likely not alot they can do. What does your Heritage rep say? What does the agreement you signed say?
The question is, why did you sign up? What has changed your mind? Is there an altenative that better meets your needs, and why?
I have been contributing to a CST and UST plan for my children for many years. It is a long time to commit to an investment. Thankfully, I have always been able to meet my obligations. This is critical to consider when signing on to one of these plans. If you are not sure that you can meet your payments, do not give them your money. If you are sure that you can meet your payments until maturity and want a very easy way to invest for you kids, than it might be worth it.
Of course you can cancel. The contract that you signed should clearly state, and the representative has the obligation to inform you that you have 60 days from the time you sign the agreement, to cancel without any fees. All collective programs stipulate this in their prospectus. You will need to send a letter (or fax) saying you wish to cancel. If I were you, I would make a stop payment of the check and keep a proof that you faxed the letter.
To Pul, there are options that should be explained to parents who don’t want to make a long term committment. They also have the option of making lump sum deposits.
Heritage Education Funds Inc. is biggest scam in Canadian education fund. If any parents out there really care for your children education future, open up a saving account with your child’s name. I only find out the game they play 18 years too late.. Don’t fall into that trap. Don’t even get started, they won’t let you withdraw if you miss a monthly deposit, they won’t release funding unless your child go full time.
http://web.me.com/picture3/Heritage_Education_Funds_Inc./SITE.html
There is no such thing as an investment that doesn’t cost something. Do you think the banks make Billions every year because they don’t charge fees? There are costs associated with investing. If it cost you $1 bus fare to go down the road and make $10, you are still $9 richer. Don’t take any advice from a Money Sense Magazine that has an advertisement on every other page. I am sure those advertisements were not free.
I’ve invested with London life, Investors Group and CST for RESP’s and none of them were good for us. London life was a real joke, when I had “Freedom 55″ pooled life insurance/retirement plan B.S. … took me 10 years to break even and than cashed out. Then went to Investors Group as I felt they would hold my hand through the investment process and fulfill my “hopes and dreams”. Time goes by with an average of 2.7% MER’s weighing us down and our positions never changed. Cashed out and very happy we did. A now we’re 100% self directed at TD Waterhouse and life is grand! Managing 400k at an average return of 10%/year at a cost of 9.99 Opposed to 400k – 2.7% (per year) = $10800. I have to say however I spent a lot of time studying the market… It may not be for you. But everyone can stay away from a pooled RESP plan like CST. Bank RESP’s are the way to go. Good luck!
Ravonar: If you ever get divorced, give me a call.
As far as the rest of you, this seems to be a pissing match between a bunch of overgrown idiots.
I am the unfortunate owner of an ‘inactive’ Heritage RESP. My ex and I signed up when we were young, stupid, starry eyed parents. In the terms of our separation agreement he was supposed to keep paying it. Surprise surprise he didn’t.
He stopped paying while I was in school myself. They told me I had to contribute for a year and a half before my account would be ‘active’ again. If I didn’t pay within three years I would lose it entirely. If I withdrew I would see less than half of the contribution back.
Total Contributions: $4,500.00
Membership Fees: $2,114.00
Insurance Premiums: $218.70
Depository Charges: $85.26
Principal: $2,082.04
Being enrolled in a 4 year program, raising two children on my own and working nights it was pretty impossible that I was going to be paying any money into an RESP for a while.
For those of you considering group RESP plans try to imagine your life in 20 years. Try to imagine squashing that beautiful little child of yours into a box so that they can benefit from your investment in their future. Anything can and almost definitely will happen between now and then.
Should your child go to a conventional institution, enroll in a 4 year program and graduate within 4 years then yes you probably will see an amazing return on your investment. Be reminded it will be at the expense of hundreds, perhaps thousands of other people’s children for whom life didn’t turn out like it does in the movies. Your welcome, from my daughter.
Another poster made the very intelligent comment that it wasn’t a bank that was calling him daily when his new born was napping and he was trying to catch a few moments of peace on the couch it was a group plan sales person. Want to know who gave them his number? The hospital.
Something that preys on the vulnerable is a predator and that is what these group plans are. They aren’t calling me now that my children are in school and I am a well adjusted adult looking to secure a little bit of my child’s future. Heck they aren’t even returning my calls.
I might consider biting the bullet and continuing to pay into my group plan if I could be confident that when my daughter went to school the money I invested would be there for her. But Heritage Education Funds (aka Allianz Education Fund Inc) does zilch to allay those concerns. In fact the cryptic language only confirms for me that the odds of them ‘approving’ of my daughters educational institution aren’t great and I never was much of a gambler.
Some of the best investment advice I was ever given: “If you are investing for anything less than a 20 year term you should expect to see a loss. That way you’ll be pleasantly surprised IF you actually make money. Contribute lump sums annually and know what you are saving for.”
Heritage will never get another dime from me so I hope they make good use of my daughter’s $4500.
keco86, i feel for you.
if you scroll up to july 30 and sept 22 2010 you will see my story.
i think it’s DOWNRIGHT DISGUSTING.
currently, we are waiting for our case to be taken on by the ombudsman. we’re still fighting it.
Lots of good stuff to think about here. I am at the crossroads, self directed resp vs group plan (USC), 4mo old baby. From what i have read here and from my understanding of the group plans, IMHO people are thinking about the group plans from the wrong angle. Do not think of them as classical investments (fees/loads, mer’s, yearly returns, market timing,etc). Think of them as a black box: there is an input, something happens in the black box, and then there is an output. You don’t invest in them, you purchase units, and then 18yrs later you redeem the units. You don’t really care about anything other than how many units you get and what each unit pays out, and is the payout worth the investment.
my (atypical) scenario for USC: contributions (one time deposits): 20k in yr 1, $10k in yr 2, $10k in yr 3, $5k yrs 4 and 5; total $50k. total of government grants $2.5k. Why? because units are cheaper while the child is younger, trying to maximize # of units. This way should have approx 100 units (based on chart at end of 2010 prospectus). Historical EAPs (INCLUDING discretionary payments) for mature plans with the following calendar year of eligibility have paid out $1250/unit for 2005, $1190/unit for 2006, $1180/unit for 2007, $1160/unit for 2008, and prob $1140/unit for 2009 (my estimation based on the first 2 EAP installments). So here is the leap of faith: what will plans payout in 18 yrs from now? (this is where people with more knowledge than i need to chime in). Lets assume $1100/unit (why? because lets say payments have decreased due to the recent craziness in the economy and the economy should have stabilized in 18yrs). So total payout in 18yrs: $110k (EAPs:100units x $1100/unit) + 40k (contributions minus enrolment fees: 50k – 100units x $100/unit) + 5k (grants (2.5k) and grant income (assume 2.5k)) = 155k. So $50k in equals $155k out, is that good? i dunno.
self directed method: assuming the same contribution method, what kind of average annual NET rate of return on your investments would you need to turn $50k into $155k in 18yrs: 6.7% (someone check that number, i used an excel spreadsheet with formulas i made up). So assuming a mer of 0.5%, you would actually need to get a return of 7.2% and have paid $12.5k in fees to the bank. now the question for you guys is: where can i (safely/low risk) get an average return of 7.2% every yr over an 18yr period??????
I have both a group plan for my son (Heritage) and a bank plan with my daughter (no charges).
My concern with Heritage is not only the membership fees but the conditions around them. I agree with keco86 in that regard, what if your child does not enroll in a 4 year program or worse yet, what if they enroll in a non-qualifying program, such as I believe, helicopter school, if you have maxed out, you will get your $50,000 investment back tax free but what about the balance and the grants…..
Which is why, for my daughter I went to the Alberta Treasury Branches. I put 25% in bonds, 50% in Alberta Select (essentially they invest it in 13 Alberta Companies AND your principal is Guaranteed); 15% Canadian Stocks and 10% U.S. Stocks. Lets not discount the U.S. They are like a cat with nine lives. I recently dumped $50,000.00 from a “high yield” G.I.C. earning a whopping 1.2% and have averaged 10% over the last six months.
Anyways those are my thoughts for this morning.
Ravonar,
There are too many comments on this site to reply to all of them, but yours intrigued me.
Point form:
Heritage has fees, but the ATB does it all for free, or do they have different fees?
As far as ‘qualifying program’, you will find that the helicopter school will be treated the same way by the bank, as by the Group plan. They can use the RESP for the program, within Income Tax Act limits, and the rest can be pulled out as cash, rolled over into an RESP, etc.
ATB – Alberta Select – market linked GIC. If risk is what you are after, you would probably have been better to invest the companies by themselves. The bank will take a large chunk of the profit, to provide the “guarantee”. (Nothing is free, you are paying for the guarantee).
http://www.atb.com/Pages/Dev/investing/documents/linked/AlbertaSelectGIC.pdf
I hope you do well with your choices, but obviously, except for the GIC, only time will tell.
As far as how well you have done in the American market – pretty much everyone has. It was on a rebound from the horrible dive it just took. I hope you do well with them, but I wouldn’t use the last 12 months of returns as any sort of guide.
“High Yield’ GIC – no such thing.
Reggie,
I agree with much of what you have said, but would ask you to look at a few things. First of all, you are probably being optimistic with the USC payout at $1100. There are not invested in ‘the market’, and that will not be a deciding factor on their returns.
You are right about the returns, but what most people on this page will argue about your point is that they plan to do a ‘high/low’ strategy. They plan to go high risk for the first part of the investment, and switch to low risk towards the end. Feel free to do a spreadsheet with that scenario. The returns that are needed in the first years then need to be much higher, as they shift to low returns, in what should be the highest earning years (exponential growth). Some people need the risk, and that is entirely up to them.
The other thing you might want to check out, however, is other group plans. I would submit that if you shopped around, you would probably find one that offers more flexibility. Check out happens if your child two or three years with the USC plan. Find out if you can switch it to another child, if the first one doesn’t go to school. Make sure you know all of your options, and read the prospectus.
Just my two cents.
keco86
Sorry to hear about your situation. It would have been better for you to have the statements mailed to you, while your ex was ‘contributing’ to keep an eye on the investment, but that is already past.
I will let you know that you have other options than what you have posted, and I advise you to call the company to inquire about them.
As far as ‘the hospital’ giving out information – that entirely inaccurate. They would never do that.
Also, the child doesn’t ‘need’ to go to ‘conventional’ schooling, and doesn’t ‘need to go for four years’. They have as many options as with any self-directed plan. (actually more)
As far as what you should do in the future, if you decide not to continue with your plan, get your principle back. Other people’s children don’t need to benefit from your ‘$4500′.
I would recommend that you do more digging, as you do have options that I don’t think you know about. You might be pleasantly surprised.
I work in the industry, and I am far from a predator. I have so many clients who continue to thank me for helping them, as they would have continued to put it off. I have other clients who start with the bank, and after a few years, realize that they have saved nothing. Some people like the structured saving.
I would submit to you that your biggest beef should lie with your ex, because if you had been in the loop the whole time, things might have been much different.
Henry,
I don’t know what to say, other than a lot of what you say is untrue.
To Ram @ Jan 17th,
I do suggest that some group plans get good returns, and I have always coached people to look around.
First of all, from the numbers you posted, I see a rate of return around 4%, not three. Keep in mind as well that the plan can be open for quite some time, before the grant is deposited into it. (for numerous reasons).
As far as those returns, they can be found on sedar.com, so they are no secret. The reporting is what is different with each company.
Basically, if you took the posted returns from the MRFP of each of the group plans, over the last ten years, you would see big differences. The growth on a 10,000 investment, over the ten years as posted, gives returns that differ from the highest to the lowest by almost three thousand. The CST plan that is being marketed today doesn’t have 10 years of returns yet, but with the nine years they do have, it appears that they will be towards the bottom of the pack.
I am saying two things – first, I am not sure how CST reports to their subscribers, but it is entirely possible that some of the income that was made in the plan isn’t attributed to individual plans, and is in the pool. That would mean that there is more available to the family than what is on the statement. (this could easily be answered by calling the company.)
Second, I wouldn’t recommend judging all of the plans based on the returns of one. I know some of the plans don’t attribute all of the income to the individual plan holders, and is kept in the pool. Basically, that would mean that using the statement numbers that you posted to see the actual returns of the plan would be useless.
[...] careful of scholarship or pooled RESP plans. These are typically sold by salespersons who earn large commissions. If someone calls you or [...]
@mark
thanks for the reply. in regards to the payout for USC going up in the future, my thought process was something like: bond returns are influenced by interest rates/inflation, so right now interest/inflation is low b/c governements are trying to stimulate the economy, in future, the enconomy should get better and with it higher interest rate/inflation and better bond returns (correct me if i am wrong, definitely could be since i am new to investing outside of giving my money to an advisor to buy me mutal funds)
high/low strategy: yea i saw that, but for the high part you need to be largely in equities, and therefore more risk, and another down turn could hit you close to the transition from high to med to low, possibly resulting in not enough time to recover before you need to be in the low risk/return phase. but still need to look into more
as far as flexibility: thats one of the things that stops me from jumping at group plans. with usc, you will lose the remaining money if you stop after 2 or 3 yrs and i dont think you can switch it to another child (money from attrition is one of the reasons to be in the group plan). the one plan that is flexible probably would probably have lower returns/similar to individual plans (?) but if looking at individual plans then DIY cos then plan fees will hurt returns.
the search continues
reggie
Good afternoon,
I was wondering if anyone had experience trying to withdraw money (once reaching maturity) in regards to a USCI scholarship plan. My husband and I signed up for the group plan (nearly 3 years ago) and was led to believe the fees (including enrollment fees) were standard. At the time, I didn’t take the time to thoroughly review the prospectus (which was our mistake). After reviewing the propectus recently and comparing it with self-direct plans, I feel I made a big mistake. I realize no one does anything for free, however, enrollment fees should not be paid entirely within the first three years of the plan. This should be an annual fee. By paying everything is full, you penalize anyone that has to (or chooses) to withdraw from the plan earlier (even to transfer to another institution), and you lose the earning power within the first three years. Furthermore, I don’t understand how they can justify taking back the income earned on your contributions. That is money earned because of your investment. That should not be forfeited. Secondly, the guidelines surrounding the Education Assistance Payments is insane. If they do qualify and you miss any deadline your student will no longer be eligible for EAP payments period (and these payments include income earned on your contributions, grants and income from grants, plus possible discretionary payments). I can see perhaps, forfeiting that particular payment, but for the remainder of the plan…doesn’t seem fair. Furthemore, the deadlines are hard to understand. In one section, it reads August 1st of every year (including the first year) and then apparently two more times each year (due to the installments). If you happen to miss any of these, my understanding is you are only left with the contributions (less all those fees). I am contemplating transfering this to TD. I know I will lose around $2000, but I really don’t feel comfortable with all the restrictions. So, getting back to the original question has anyone else had any experience withdrawing their money from USCI once their child became eligible? I don’t mind seeing things through (I’ve already paid all the enrollment fees), but I feel uncomfortable with the fact the money seems difficult to obtain in the end.
Have you guys look at the alternative choice of compound growth dividends saving plan. Group RESPs or Bank self-directed investment involves lot of fees when you take close look. You may be confused by why a simply education saving plan could be made so complicated. I don’t mean that group RESPs or self-directed investment is bad decision to everyone. But for those who don’t want headeche for bothering which funds they should choose from self-directed investment and those who is scared about all the fees and hidden conditions, the compound growth dividends saving plan may be a good option to you. As posted, average return rate in last 25 years history is 9.3%, same as equity TSX average return but the deviation is only 1.3% vs to TSX is 16.4%. Best part of this option, my kids don’t need qualified to any school or university, and I can keep money compounding grow inside this account after 4 yrs school time without paying any MERs or enrolment fees. Because I can not guarante my kids will go to university or qualified college, can you? Why we take 50% risk on MAX $7200 government grant in RESPs.
As we all know, $7200 is not even enough for 1 years tuition+room fee in UBC, don’t even mention about university in other province or abroad.
If I deposit $2500/yr for newborn, at age 18 to 21, I can take out $60,000(no taxes in first 2 yrs) for his education cost. And also cash value in account will grow to $592,226 at his age 65.
If you do have RESPs account already, I don’t mean you should cancel it if it will involve penalty. But I leave the question to you, can you make enough fund to cover the cost of 4 yrs university, the cost of continue education( if lucky) or the cost of future need for your kids?
Thanks Swift. I’m definitely going to look into the “compound growth dividends savings plan”. I have already initiated the process of closing my son’s group RESP. I didn’t feel comfortable continuing to contribute funds to a plan that in my opinion is too restrictive. In the end, my son might have only been left with the net contributions. No interest, no government grants, no nothing if for some reason he didn’t qualify for their Education Assistance Payments. There were just too many “what ifs”. So, I decided to take the penalty and move on. On a lighter note, I would like to thank everyone who contributed to this blog. It was a very informative read. I only wished I had conducted the proper research in the beginning.
I strongly discourage anyone from using the company Children’s Education Funds Inc (CEFI). My whole family used and it is a scam. They are very difficult to work with. My sister didn’t receive any benefit from it and I only received half of what was expected from them. My one word of advice: don’t use CEFI.
Hey Ravonar,
If you think you are paying NO FEES, you didn’t read their Prospectus. Ask them what their MER charge is? Ask them what a MER charge is? An RESP is a LONG TERM plan and some of the comments about returns early in this discussion (like judging after only 5 years) are misinformed. It would be like telling Da Vinci that the Mona Lisa was crappy, 2 days into his work.
Sandy, you are welcome, if you like, I can share some detail info to you.
The lady making the pitch for a group RESP at the mall last week made my young kids balloon animals. She was only able to make dogs but my kids were happy.
Greg, yes. . . that mirrors my experience with Group RESPs. They are a clown show.
Group RESP’s (CST, Heritage, CEFI…) are clowns to say the least. Stay away or leave them asap
Wow this conversation has been going on for what 5 years now and the debate still continues?!!?! This just tells me the Group plan providers have no clue how to market their product as a simple, safe and reasonably sound investment. Maybe because it’s just not true! Btw… I work for one of the group plan providers in head office and hate my job because I know we add no value to Canadians. But its a job and pays the bills… So from an insider who really doesn’t care if the company does well or not take it from me. If you dont know much about investing stay away from the group plans. Funny they are supposed to be for people who don’t know much but the problem with those people is they also dont know when they are being ripped off.
I beg to differ….in support of group plans, I started one for my son when he was young and this year he starts college. I received all of my money back in full and he just received his first payment for college. People just don’t understand that when one starts a plan it is a commitment to keep it going until the child is ready for school. I sure preferred to go with a group plan rather than loose my money in mutual funds….
I have seen many silly and obviously false comments on this topic, and I let most of them go by. Joe’s recent comment really shows how people have to be careful about who they believe on the internet, because of its anonymity. People can say anything, true or not, because they know that their identity will (probably) not be revealed, and no one can really “call their bluff (lie)”.
Joe’s comment is a perfect example. If someone just gave it a once over, and went on their way, they might actually believe some or all of what he says. Upon a deeper reading, however, I think most people would see that he is either a scum ball, and therefore should not be listened to, or a liar, and again, should not be listened to.
Here is how I figure that. Let’s first of all take his comments from the prospective that what he is saying is what he actually believes. He states: “Btw… I work for one of the group plan providers in head office and hate my job because I know we add no value to Canadians. But its a job and pays the bills… So from an insider who really doesn’t care if the company does well or not take it from me. If you don’t know much about investing stay away from the group plans.”
So, again we are going from the perspective that he believes what he has written; here is what we know about him. He thinks that group plans (at least the one that he represents) are horrible for Canadians. We also know that he is willing, for money, to help this company in its goal of reaching more families. He says: “But it’s a job and pays the bills”. Basically, he is saying that he is willing to do something that he knows is wrong, for money. Obviously, this is not a person with integrity. Also, if he was so worried about ‘paying the bills’, would he really be here trying to get the company that he works for less business? Doubt it. Bottom line, if we believe what he writes, then we must also believe that he is a person of no integrity. The question must also be raised; if he really worried about ‘paying the bills’, would he be posting here, with the slight possibility that his identity might be revealed and his job lost?
Now, let’s look at it from a more obvious angle. He doesn’t believe what he has written. Why then, would he bother posting? I have come up with a couple of realistic possibilities. First, he used to work at the head office of a group plan dealer, and got fired. This would probably be the only way he would have to lash out.
Secondly, he never worked at any group dealers head office, but has a bone to pick with group plans. In the financial planning world, some people act with integrity, and some don’t. Group plan representatives go over the fee differences between mutual funds and their products quite well (or at least they should). In doing so, they sometimes anger the financial planners of the folks that they sit in front, because they haven’t adequately explained their fee structure to their clients, and sold them on the value of it. Many families every year change their investment strategy (which sometimes means that they also change their financial planner) after meeting with a group plan representative.
Most financial planners have no idea how group plans work. I would say that this Joe fellow could be one of the financial planners who is new in the industry, doesn’t explain the MER’s well to his clients, and has just lost one (or more) big clients because they talked to a group plan representative. He then went to the internet to ‘research’ group plans, and came upon this site. He then figured that the best way to ‘slam’ the group plans would be to pose as an ‘insider’ from one of their home offices.
No matter if you think that Joe believes what he has written or not, he cannot be trusted. He either is a pathetic person, willing to do anything for money, someone who just got fired, or competition of the group plans, with an axe to grind.
Wow, having read through 3 or 4 years of arguments…the proof is in the pudding. My daughter is 20 and entering third year with plans for a Master’s.
I proudly support group RESPs. (I had the money before I had the kids).
I bought a personally chosen RESP when my daughter was 1. When a trust account crashed in Alberta I worried about my investment in CET (also known as Children’s Education Funds). My daughter was 4 when I made a lump sum purchase (saved up from the monthly ‘family allowance’ at the time) of a $2000 CST RESP. I chose the Founder’s Plan.
So how did the two plans do as far as ACTUAL INCOME? Since this all predates government RESP contributions there are none of those included.
Canadian Scholarship Trust: Very transparent and sent out notices estimating 2009 returns each year.
Year one: in June she received a letter requesting information on where she was attending university. Upon providing a photocopy of her confirmed admission we shortly received a cheque ‘refunding our principal’ of $1600.
Year two: A stamp from the registrar’s office confirming enrollment mailed back caused a cheque for $803.42 to appear in her bank account in late August for the fall term, and another in early January. Year three: a deposit of $803.42 in August. (total so far $4000) Probable total by the end of year 4 is $6400!
What is that for $2000? Is that a 300% return on a 13 year investment? Or 45%? I only know it did way better than my GICs and I can’t even contemplate the pitiful returns on my mortgage fund.
Children’s Educational Funds: $5000 in 5 lump payments beginning in 1992 when she was 1 year old got us 6 units.
Year one: Nada… our sales rep had filled the paperwork as maturing in 2010. (kid was 15 when we noticed this in the fine print. Would have cost $1800 to correct. Cost the principal $64 just to find that out.)
Year two: After standing in line at the registrar’s office to have them mail off our forms plus forms that they had to print off the internet (before August 1 or we would lose an extra $100) in mid September she got about $3600 as ‘refund on our principal’.(Other people ‘got’ $4500 in EAPs)
Year Three: same as year two except we still haven’t seen a cent of her Education Assistant Payment (This sounded like a student loan when the first paperwork came in late July). Apparently CET has a problem with our university writing that she will be “third year” when she finishes her exams in December on the forms. Sigh… Probable after year 5 if we can survive their system? (…either $3600 or…) $15000 to $17000. Anything over $8000 still beats out 16 years of GICs at 1 to 5 %.
So, yes ‘they’ skimmed about 30% off the top, but when it came to my child’s education I didn’t have a coronary incident every time the stock market dipped! Although buyer beware on Children’s Education Trust! And how ARE those stock-linked bank accounts doing?
The people from CEFI should go to jail ! Why Canadian goverment spoil these type of companies exist so long? stay away from these agency like CEFI (children’s education founds Inc).
Mark you’ve got too much time on your hands. I am telling the truth about the fact that I work for one of the group plan providers. NO I don’t like what I do for a living but I do have to feed my family so I do it for now until i find something better. I didnt know anything about group RESP when i took the job . Millions of people work for companies whose products they don’t believe in and I am one of them. If the company closes down and I have to find another job it’s ok but I doubt one comment on some seemingly endless thread on this website is gonna have much impact. I just thought I would give an honest opinion from an insiders point of view to maybe help out a few people. I work for these folks (for now) and I personally wouldn’t open a group RESP. Bottom line is it’s just not worth all the hassle. This is not even me speaking… this is the hundreds of customers who have complained (just the ones I know about) in my relatively short period of time with this company less than 2 yrs. It really makes no difference to me what anyone does with their money. I’ll be fine either way.
Well it took most of the afternoon, and a bit of this evening, but I read – fully – all the posts here. My wife and I just had our first kid (11 wks ago), and were approached by a Heritage rep last week. Neither of us has a financial background of any sort, but we’re pretty clever people and we read the prospectus – carefully. I then went and examined the prospecti (?) from some of the other group plans, which were broadly similar. I then went and read this forum, and a couple of others, on the whole issue of group RESPs. I also followed the links provided by others in this forum.
I would like to – in earnest and good faith – present my reasonably informed outsider’s opinion to those that pass by. In any and all cases, do your own research.
Firstly, I am aware that there’s a tendency in this forum (and others) to interpret those who favour group RESPs to be reps or other shills. In some cases there are good reasons for this (it appears several posters on here have pretended to be happy customers singing the praises of their particular group RESP, but are probably reps. I certainly don’t consider Mark a shill because he’s been up-front about being a rep, careful not to say which one he represents (there are hints), and shown he’s put some real thought into his arguments). With this in mind, I want to be very clear that I am not a rep or in any way affiliated with any group RESP plan, or any financial institution or fund. My actual career is as a consultant geologist.
Here’s a summation of my research and understanding:
- Group plans are complex. The fees and expenses are not trivial for the average person to understand.
- This complexity could be seen as deliberate obfuscation or as endemic to the system they use. Maybe a bit of both. However, it doesn’t reflect on their potential value to a client.
- You can achieve higher returns with a self-managed RESP, or with a bank managed plan that’s a little more aggressive (to make up for the somewhat higher MERs, requiring more risk exposure).
- These options usually require risk exposure, if you want to outperform a group plan. They also require you to do some work, and maybe be a bit knowledgeable, or trust your financial advisor(s) or the advice of people on the internet regarding how to manage your money. (Maybe don’t do the latter.)
- GICs or bonds are the low risk self-managed alternative, but your return rates will be pretty low. Mark above made some good points regarding how these won’t perform as well as a group plan because of how group plans can make use of the large pool of cash, and knowledge of when a client will need the money.
- Group plans offer low-risk but somewhat higher returns than your self-managed low-risk options.
- However, group RESPs (particularly Heritage) are designed to work best – and are probably the best option – for people who 1) want to put no effort into managing the plan, and get all the prov. and fed. government grants they are eligible for, 2) are pretty darn sure that they will always be able to make payments, and 3) are pretty darn sure their kid will go to an accredited institution for a 4 year degree. You’ll get pretty much everything back (not the MERs) and more (scholarships, depending on attrition) in this case.
- The list of eligible institutions with Heritage is pretty inclusive: http://www.heritageresp.com/content.aspx?id=140
- The very best results are obtained by kids who do a 4 year degree program and don’t fail so many first year credits that the university considers them still first year in year 2. (Actually if anyone fails first year courses they are partying way too hard. Find a tutor or wake up and smell the future.)
- If they do a 2 year college program you lose 75% of the enrollment fees, but get everything else the 4 year degree person would get.
- The return of the enrollment fees is “discretionary”, but from what I see the major group RESPs have a very good history of returning them in full when the criteria are met (again: eligible institution, 4 yr program, don’t flunk so much that you aren’t moving up a year. Actually, don’t flunk. Work hard.).
- The enrollment fees are up front, so your account gains very little principal in the first couple of years. People appear to get very upset about this. I put it down to either reps not explaining adequately, or the client just didn’t get it and was sold on the large (perhaps optimistic) predicted sums available at maturity.
- In the end, though, getting your enrollment fees back or not will be a fairly small %-change to the cash you get out of your plan.
- The *key* thing with these plans is to keep making payments, stay in for the long haul, and get your kid to go to a good school and work hard. With these criteria, the Heritage plan is very competitive for the risk level. To me it seems these are things everyone should be encouraged to do anyway, so the losses for getting out early or ceasing to make payments are an incentive to stay in, and not use your child’s education savings for a new truck.
- However, if a pushy rep convinces a family to sign up for more than they can reasonably afford, that’s crossing a big red line from “helping them help their kids” to “exploiting someone who doesn’t fully understand the system”.
- If consistently maintaining a payment of just $50 a month for 18 years is not something you think you can do, you probably shouldn’t do a group RESP. Mind you, you should probably review your personal budget if you have a kid and can’t find a consistent $50/mo for them.
- There are options to temporarily stop paying, or change your payment amount, but this sort of thing should only be for an emergency. There may be a buy-out option partway through the term (discussed above in this thread). I’m not sure if Heritage offers this.
- If you just exit the program without transferring it appears that (with Heritage) the losses are: 20% of the interest on the principal, plus the enrollment fees, the government grants, and interest on the government grants. These are strong disincentives to do what my wife’s parents did to her: when she was 10 or 11 they took out the $10k they had amassed for her education and used it to get new stuff after a house move. She worked multiple jobs all through her two degrees, and has worked very hard ever since, to pay off her student loans. We’ll be finally free of them next Sept.
- We are both professionals, live well within our means, and are not concerned that we would at some point be unable to make our yearly payment. We would never force our daughter to go to university, but we do intend to instill in her an appreciation for the immense value of a post-secondary education. In the end, if she doesn’t go, whatever. We weren’t going to have the money for ourselves anyway. We’d get about 2/3 of the value of the account back in that case.
- To wrap up, I have come to believe that the plans work well for most people, provided they stick with them and their kid goes to post-secondary. I like that it’s hands-off with just a yearly payment (in our case, others do monthly). I found our rep knowledgeable and friendly, certainly not pushy or deceptive. My wife and I have called her several times with followup questions, and she has been completely open and forthright (and knows the prospectus inside and out). I know, from reading others’ experiences, that there are reps who are definitely not like that. Who are pushy, deceptive, or manipulative, using misinformation and conscious omission to force sales. They cross the big red line I mentioned above, and their actions are indeed predatory. They should at the very least be reported. Aren’t there laws that govern how financial advisors give advice and conduct themselves? Do these reps answer to those laws?
So we’ve gone for it, and we’re going to stick with it. I’m confident that we will not miss a payment, or have to try to extract the money prematurely. If you aren’t able to be so confident, then it’s probably not for you.
A final word:
Again, I’m not a rep, or otherwise an industry member. Of course, due to the anonymity of the net, I cannot prove it (I considered trying but it’s pretty pointless really). I knew very little about RESPs at all until last week. I feel much better informed having read the prospecti and the more informed comments here. The point of my post here is to say that, after a lot of reading, I’m convinced that group RESPs (particularly the one we chose) offer the best RESP solution for us. If your risk tolerance, desired involvement level, and financial outlook are similar to ours, it might be the best option for you too. Note that I’m not offering this as advice. I’m presenting a rationale that works for my family, which resulted in a particular decision which in this sort of forum tends to be lambasted.
As others have repeatedly insisted: do your own research. Read the documentation thoroughly. Understand as much as you can about your options. Arm yourself with info, examine your financial situation, and come to the best conclusion for your child’s future.
Kindest regards to all.
@Ralph: It seems to me you have thoroughly considered your options and made a good choice for your circumstances. Good luck! And thank you for such a detailed comment.
Maggie here again. After numerous phone calls and convincing the Registrar’s office that it was in their best interest to help my daughter get the funds by sending another letter confirming to Children’s Education Trust that she is a fine upstanding student in third year, CET came through.
It was a whopping cheque for over $4000 as a “first EAP”, of which she is entitled to 2 more if she keeps up the good work. Considering the current economic climate I was astounded. Canadian Scholarship Trust (which has a much better reputation) only paid out just over $400 a unit, but CET managed $700+ per unit. Granted I began CST a year later. I hope that our windfall wasn’t accomplished on the backs of students whose Moms aren’t as forceful as myself, but it is a relief.
And a $3600 return plus three $4000+ returns is absolutely incredible- $15600+ from a $5000 investment 17-19 years ago.
Ralph says it well. Any other money I ‘invested’ since then did poorly although we have some nice older compound interest growth Registered Retirement Savings Plans. But a lot of money just disappeared as groceries, home repairs, and into autos and so it is not available for the kids, and that summer job income gets pretty sketchy by March.
I’m still sold on group RESPs.
Hi All,
We are in the shopping phase of opening an RESP account. We were approached by the Fondation Universitas (MER: around 1.4% + enrollment fees + the usual restrictions) (a group RESP plan available in Quebec). We are leaning towards an individual RESP.
A part from the TD e-Series, anyone knows similar products available at other banks? We are looking for MERs under 1.4%. I called TD Waterhouse and I really liked the fact that you can set-up an automatic monthly plan without any transaction fee (for th e-Series Funds). The 50$ annual fee is a bummer but still better than BMO Investor Line that charges per transaction. What is the recommended asset allocation?
Jonathan – to clarify, you can open up TD e-Series without (a) opening a TD Waterhouse account and (b) without even opening up a TD banking account. So in other words: No annual or monthly fees outside of MER. No other banks offer this type of thing to my knowledge.
As for allocation I personally do: 20% bonds, 30% international equity, 30% canadian equity, and 20% us equity. I think most people do some variation along those numbers (note: my son is 5. When he’s 10, he’ll be at about 40% bonds). That’s because I’m a bit conservative; I’d have done better with a 0% bonds allocation but hey, I have to hedge my bet just a bit.
Geoff – thank you for the info. The rep (called Director at the Bank, but, hey, all cashiers became Bank Directors when they started to introduce ATMs) at the branch told me that it was only sold through TD Waterhouse.
Is your allocation considered aggressive? I am not second-guessing your choice, but I always thought that the main objective is to preserve the capital. How ofter do you change the allocation? Once every year?
Yeah I figured that’s what they told you. They don’t know. There’s an article on this blog that talks about how to do it step by step. When you go to the branch, bring a print out of the step by step. I personally have done it. Part of the problem is the “investor advisor” you meet with doesn’t get any commission or credit for the sale which I see as a TD problem, not mine. But it means they’ll try to get rid fo you anyway they can.
I consider my allocation moderately aggressive but not foolish. The main goal is to maximize returns while minimizing (not eliminating) risk for me. But then again, I believe that 13 years from now coca cola will still be sold in stores, microsoft will be around, people will buy ipads or whatever and so my investing reflects this (with the 20% bond allocation hedging 20 cents of every dollar). There are people who advise with a newborn to go 100% equity but I couldn’t bring myself to do that, even though I’d have done better with that than my 80% in the last 5 years.
I don’t change teh allocation, though I do use the government match to shore up my %’s a bit.
My plan is once my son is 10, to move up to 30% bonds and then basically do that every year until he’s about 15 and he’ll be in 80% bonds, 20% equity since I won’t have a lot of time to recover if the market goes down.
You could always start at 40% bonds, 60% equity if you’re more risk averse.
@Jonathan: I can confirm Geoff’s comments. I have set up a TD Mutual Fund RESP account for my own kids. The mutual fund account has no fees of any kind but note that AFAIK, the TD Mutual Fund account can only receive basic CESG. So, if your family is eligible for the enhanced CESG, you have to look elsewhere. You can set up a TD Mutual Fund account even if you are not a TD Bank customer.
Again, my asset allocation is similar to Geoff’s (my kids are 6, 6 and 3). As they grow older, the portfolio will become more conservative. The point is young kids have a long time horizon and can afford to take risks but if you are unwilling to do so, just dial down the exposure to stocks. As Goeff points out you can do that by boosting the allocation to bonds.
http://www.canadiancapitalist.com/investing-in-td-e-series-funds-for-your-resp/
FYI, most of my posts on RESPs are filed here:
http://www.canadiancapitalist.com/category/investing/resp/
I’ve said it before and I’ll say it again. Stay away from Group RESPs. I posted a few months ago and my motives were called into question. I said that I worked for one of these companies (in head office not sales) and didn’t think they were a good product. Well I no longer work for the company. I just couldn’t take it anymore and finally found another job. People I have no connection to this industry at all anymore. I really just want to help young families who are trying to make a decision in how to save for their kids education. We got hundreds and hundreds of complaints each year from contributors who were either disappointed with payout amounts or baffled by how the product works. Many of them simply (despite the salespersons best efforts) did not understand what they signed up and later regretted it. Almost all of them say they wish they had just chosen a simpler way of saving. Do what you want, I’ve said before it ultimately makes no real difference to me, but don’t say you weren’t warned.