In The RESP Book (review here), Mike Holman points out the reasons why parents should avoid Scholarship / Pooled / Group RESP plans:

Very, Very expensive. There are large upfront sales fees paid to the salesperson, which are paid from your contributions, and very high ongoing fees. They have restrictive rules that can mean getting less money out of the plan if the child doesn’t go to school.

In my opinion, the biggest and loudest complaints arise from the lack of flexibility in Scholarship RESP plans. First, a lot of parents sign up without fully realizing that they are committing to contributing regularly to their child’s RESP and if they miss contributions all they might lose the Government grants, earnings on their contributions and initial enrollment fees. By contrast, a parent can choose to skip a contribution or two to a RESP held at a bank or discount broker and resume contributions at a later date.

Some parents stick with the contribution schedule until their child is in University and then find out that Group RESP rules are more restrictive than Government rules that deal with RESP withdrawals. One parent found out that his child does not qualify for payments because he switched to another program in the same University. Another found out that her child does not qualify for payments because of a strike at the University. Or heaven forbid, a child should fall ill and miss a significant chunk of the year.

Group RESPs would probably work well if life follows a carefully scripted plan. Unfortunately, stuff happens and then we find out that Group RESPs were not such a great idea after all.

This article has 32 comments

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  2. I am a parent will some financial training but no vested interest in scholarship RESP. I believe the statements in this article are valid but the implied conclusion that scholarship RESP should be avoided is wrong. Scholarship RESP have risks and like any investment should be part of a larger portfolio of diverse investments. The scholarship RESP risks are unlike other RESP investments as they largely rest with your childs actions. In short, the scholarship RESP is a bit of a gamble where you have a good chance (about 35/65) of winning an excellent payout (up to 300% rate of return) but on the other hand you could lose (about 65/35) some of your investment.

    • I have had CST RESPs for all 3 of my kids. The oldest is one 27 middle child 23 and the “baby” is 17. The oldest didn’t go to school and so we transferred his plan to the middle child. No problem and no fees for doing this. She went to one yr of college and lasted a week. We got all of the principal back and the fees and one Payment for college. So about 1/4 of the interest it had earned plus top up so far. She has been waitressing for 3 years now and just called me to say she thinks she should go back to school. I called them thinking it had been too long since I let them know what she was doing but to my surprise no problem! Any time she wants to go back and retake 1st yr or just go part time she can. And get the next payment for school. I knew we could take out all of the interest and principle if she didn’t go (or transfer it to another child) but I didn’t realize she could wait this long between study years. I am posting this because happy customers don’t generally take the time to post on these forums, just the unhappy ones. Many times we missed making the deposits but made them up with much flexibility. One time they asked if if I wanted to increase my monthly contributions by $20/ month for 5 months to make up the $100 I missed. Another time I asked about quitting the plan for financial reasons and they said I could get full credit for the amount I had contributed to date, stop making further payments and leave it there until my daughter was ready to start school.This was so I wouldn’t lose any grant. We could also have taken out the money we had deposited less fees and the government would take back the grant, but we didn’t have to.I suppose there are people out there who don’t follow up with things and I can see how you could loose your fees if you didn’t, but I work for a bank and I know they charge fees too and you never get them back. And if she goes this year and gets her second payment we will break even with my banks GIC. Anything after that is gravy. So yes I am very happy with my CST plans.

      • @Alana…can you please tell me more about your CST plan like which company sold you that coz i have completely opposite experience…

  3. Thanks for the mention.

    Scholarship companies are not a scam and the restrictive rules might actually help some parents save. However, for most people are better off without them.

    @Gary – Your comment makes no sense at all.

    • Its better to open RESP with bank of a financial institution but not with these trust companies

    • Dale Thpmpson

      Run run run

      • Dale Thompson

        C.S.T. Is a scam that deceived its customers with lies. I signed up with C.S.T. In September 2009 for my twins education plan and was shocked to noticed a sale fees of close to $10,000 withdrawned from my January 2015 statement. Why would I pay some one $10,000 upfront to monitor my money. I was lied to by their sale’s rep about how the fees work and how much would be returned to me. I have decided to close my accounts and was told I would lose $7936.93 on both accounts, that almost $16000. I would like to join a class action law suit and go after these guys. I also wants to know how they got my home number to call me. Was it the hospital where my twins were born?

  4. I disagree with the other commenters. Group RESPs should be avoided like the plague. Only be people knowing how horrible they are compared to many great alternatives can people band together and stop paying these companies insane fees and lock in extortion fees. Group RESP providers should be thought of in the same group as telemarketing investment ‘opportunities’, payday loan companies, and all others who prey on the general populations limited financial savvy.

    If you can’t guarantee your income stream from the time you join to the time your kids go to school . . . Say no to group RESPs.

    If you can’t guarantee your child will go to a 4 year university program . . . Say no to Group RESPs.

    If you don’t want the first year (or more) worth of payments to go directly to the company to be held until you can guarantee the first two . . . say no to group RESPs.

    If you think for any reason you may want to move to another RESP provider without being gouged incredibly outrageous enrollment fee penalties . . . say no to group RESPs.

    Pretty much the thing to remember . . . SAY NO TO A GROUP RESP!

  5. @Gary: I disagree that Group RESPs have excellent payouts. They are mostly invested in bonds. Investors in them are likely to get bond-like returns boosted by the investment returns of those who dropped out and offset by fees. It is my opinion that parents could do just as well or better on their own. But if they do opt for these plans, at the very least they should sign up with the full knowledge that these plans are a bit of a lottery.

    @Mike: I agree that Group RESPs are *not* a scam. But they do have an incentive to set up restrictive rules and enforce the rules according to the letter because if they don’t, they will be unable to boost the payouts to those who do receive EAPs. That may be in the interests of those who receive EAPs but it is not in the interest of those who drop out for whatever reason. And people who experience losses are very bitter about it which is why we hear so many complaints.

    @Traciatim: Unfortunately, Group RESPs are not going away anytime soon. They still hold about 1/3rd of RESP assets and receive more than 1/4th of CESG.

  6. @Traciatim – I am with him on this one – group RESPs should be avoided at all costs.
    @ Mike – how one defines SCAM is debatable – scam or not – avoid these products
    @ Gary – I am surprised you are such a proponent for someone with no vested interest – my cynicism is getting the better of me here
    @cc – very diplomaticly put – but still right!

    Jon Chevreau wrote about these plans and the OSC warning consumers about it way back in 2002:

    Globe and mail in 2004:

  7. I am also a victim of group RESP plan. I was with Heritage RESP when my daughter was born. A friend sold me the plan without disclosing all the fine prints and he persuaded me to commit to full amound contribution every month. ( So he can get full commission, now I get it. I still can’t believe this is what a “friend” will do. What a shame ! ) So for the 7 years, we have contributed more than $14000 to the plan, among which $3900 goes to the membership fee, which does not include in my balance. I was so angry when I finally discover the truth recently. Thanks to the tip I found in CC’s blog, I convert it to a single contribution plan without leaving the plan. If I leave the plan now, I loose the entire $3900 membership fee. By converting to single contribution plan, I can stop the future contribution. I started another RESP account at the bank. I still loose some membership fee but not as outrageous as $3900.

    I have thought about complaining to the Ontario Security Commission but is scared away by all the paperwork and process. I am sure what government heard is only partial of the complaint. There are far more parents sign up like me without fully aware of the obligation and all the tricks those group RESP company play.

    The group RESP company abuse the trust of parents, their hard earned money saved for their kids education and government grants, Who can commit same contribution for 18 yeras and predict what their child will do when they are 20 years old? why are those group RESP company still exist?

    To all parents care for their kids education: do your reasearch and STAY AWAY FROM GROUP RESP !!

    • Hi! We are in the exact same situation. I figured out these group RESP plans are not all that great but by the time you figure it out it’s too late. We’ve paid into a Heritage RESP for 8 or 9 years now and I’d really like to do what you did and convert to a single contribution plan. Do you know where I could find information on that? I hate asking the reps because I don’t feel like they’re being upfront about it because I’m assuming they want us paying into the plan regularly. Do I just ask the rep to provide us an adjustment to convert our plan to a single contribution plan?

      • Hi Sandra
        I know that this reply is many months after you have had this decision to make. I hope you managed to work it out. I enrolled my son into the program 19 years ago and my daughter 17 years ago. It was absolutely the worst scam that I could have been caught up in…and I deeply regret enrolling. My son decided to wait to enroll in College so we postponed his date. My daughter is starting University this year and I have contacted the company. Well we will get back the amount we put in, but the great sum of money that my daughter will get in the group fund after 18 years of payments: $700.00 There was a huge explanation as to why this small amount would be ‘awarded’ but the bottom line is they made a ton of money in that pool of group money-we unsuspecting new parents were lead to believe that we were doing the correct thing and my daughter will get $700 for her second year of university…Scam,Scam,Scam

      • Canadian Capitalist

        @Kevin: Sorry to hear about your experience. I’ve heard similar reports from many parents who enrolled in group RESP programs. In contrast, self-directed RESPs are totally flexible (apart from certain minor restrictions) when it comes to withdrawals and the entire account is yours and yours alone.

      • my wife opened accounts for our twins in September 2009 with monthly contribution of $220 each. I received my statement for December 2014 and was charge a total sales charge of $9311.60 which was subtracted from my contribution of $25280.62. The Canadian Scholarship Trust Plan is a scam and should be punish. These sale charges were never disclose to me upfront and should be refunded. I will be contacting a lawyer to see what can be done.

      • @Dale Did the rep tell you that you would be charged upfront for the fees, but that you would receive a refund for it when your kids go to school? Our rep disclosed the fees, but told us that we would get all the money back (in the form of a refund that is paid out each year our children go to school). It is tacked on to the amount given to the child. I am unsure of whether or not to invest, but we are prepared to pay monthly contributions until our kids are 18, without defaulting on payments. This is a CST Plan as well.

  8. I am a fee based planner (CFP) and offer planning options for my RESP clients that they can implement themselves or have me implement for them. I always use low cost options that are easy to implement and access. I don’t understand why anyone would use these group plans in the first place!

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  11. Wow! I had no idea what a scam this is. My wife and I signed up with Canadian Scholarship Trust Foundation for our daughter in Sept 2009. We’ve been contributing $100/ month since. Thinking we had saved almost $2000 towards her education I couldn’t believe it when I checked my statement and it said $350 in principal. I’m still paying down an enrolment fee of $2100. Not once do I remember hearing anything about a $2000 up front fee. Gee, I wonder how much commission was made on this transaction? Turns out we were too busy learning how to feed, burp, and change diapers to read the fine print in a contract. Won’t make that mistake again.

    Incredibly disillusioned!

    • Well James, don’t feel too bad…after 18 years of paying into this scam, my daughter will receive a grand total of $700.00 for her second year of University. The first year, we got back what we put in over that period of payments. Too bad we can’t somehow inform unsuspecting well-meaning new parents…

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  13. Just had a rep from Heritage show up here, and I did get full disclosure as to fees. Basically, this is like a bond fund, except there is a hugefront load fee, with partial reimbursement in the end. But it also has a feature where subscribers who default/forfeit pass on what they lose to those who stick with it till the end. So is the front load fee worth it? Going throught the prospectus, it seems to have added an extra 1% return on investment, once all the fees in excess of a typical bond fund are taken into account. But from 2008 onwards, it seems that enhancement is worth less and less.

    It would have helped if the prospectus had better accounting for all this income from attrituion/forfeited contributions. Anyways, I am waiting on clarification from them on that, in order to make a more accurate calculation as to whether the front load fee is really worth its money in picking up extra income from subscribers who leave.

  14. We invested in the scholarship fund since 1998 for 3 of our children. At the time our rep informed us that the funds were transferable between our 3 kids. Our son enrolled for college in 2009 and we received just 600.00 towards the enormous fees that we had to pay upfront in the 1st semister. After the 1st year he dropped out of college. We thought we could take advantage of his remaining funds towards our daughter that will be going to university this September’12 only to be informed that since my son used part of his funds we could not transfer his remaining funds to our daughter. If I stop making further payments towards their RESP funds, we end up loosing everything. I guess at any given time, there is always someone that has their hand in your pocket without you knowing about it. The next sales rep that comes to my door step trying to sell me something will be wondering why he got hit with the door.

  15. Also feel like I have been screwed by these guys. They do indeed portray themselves as the good guys working for a non-profit organization.
    Anyone interested in getting a group together and file a lawsuit for the lies/non answers their reps tell? It also seems they have no control what so ever on what their reps are telling people.
    We are foreigners and plan to go back to Europe. We can kiss that money good bye. All of it. Every single dollar.
    Scammers. Crooks. Living in Montreal I am surprised that the mafia is not in on this one.

  16. Wow..It is sad to read all of these comments, it is obvious that most people who complain about such plans have no financial background and therefore do not understand finance one bit. I’ve invested in Group RESPs for all 3 of my children and I cashed out with great returns. The fees are not hidden you just need to know how to ask the right questions. Yes the fees are payable up front but this is disclosed to you. I think the problem here is that most people have to treat the product as an 18 year investment. Don’t expect any returns until then and that is ok because you don’t need any returns sooner. If you are fiscally responsible and can commit to an 18 year uninterrupted contribution plan than this plan is for you. Don’t worry you will get paid when you need it. Most people commenting on this board have never made it to the end of the life of the plan and therefore are not in a position to comment on the real investment returns. Also if anyone here thinks that bank RESPs carry lower fees, you are crazy as the fees of such plans are not lower but rather they are just not disclosed to you. Ask your bank to disclose all the fees that your bank directed RESP which is invested in Mutual Funds is collecting. I manage the P&L of a mutual fund business for a living and I can confirm that $50,000 invested in a bank directed RESP invested over 18 years will accrue approx $12,000 in fees of which 90% is not transparent to the client. Group RESPs have lower fees the only difference is they disclose them all where the banks hide them, therefore they maybe perceived as being more expensive.

    • Yes, Nelson it is sad that most people who complain about these plans have no financial background and we do not understand finance one bit.
      You, on the other hand, manage the P&L of a mutual fund business for a living. Do you recognize the key point here? Most of us, as you indicate, look to people like you who manage plans etc. to direct us in making decisions that we know little about-hence consultant…rings loudly of expertise and integrity…
      People who, as you aptly point out, have absolutely no financial background go to people like you, who are experts in finance for guidance.
      You see when we are in our early years and just starting out with new-borns, we are full of love and are very naive to the workings of people who manage these ‘investments’. They use wonderful adjectives, describing in such colorful language, the incredable parents that our new born children are blessed to have. They continue to stroke our naive, yet gulible egos to the point of ad nauseam all the while playing the “you’re doing the right thing for your child”, card. Who’s responsibility was it to learn and research before signing up? Mine! But, being the trusting soul that I was and believing that someone who is selling a product in the name of TRUST, could never lead me in the wrong direction, swallowed the hook, line and sinker right to the bottom of “Suckers are us” lake.
      You know, Nelson, twenty years later, I am much more worldly and am extremely leery of those who might want to take advantage of my now 20 year old and 18 year old children. I do not allow any consultant, insurance agent, mutual funds person, banker etc to speak to my children without me being present so that my children will know how to handle the snakes of the world first hand. And if I feel like those financial wizards are attempting to deceive my family, i quickly show them the door.Which is more often than not. Thanks for the enlightenment!

  17. So just had cst come in my house last week and spent 2 hours with the consultant about the group resp. He was very good at answering all my questions and had all the right answers. The problem is that i wasn’t asking the most important questions like enrollment fees, mer, setup fees… Basically everything ending with fees i did not know, because i am a bimbo when it comes to finance. So i just thought ok you contribute in a account and then you get good income on that, then you get up to 7200$ of gov grant + income you make on it on that too and you get attrition also on top. By the end of 17 yrs i can have up to 40000$ in return! Wow that’s great! I just remember him saying its only 50$ to open the account. My husband says he herd him talk about the enrollement fees you have to pay, but i was so overwhelmed with all that i don’t remember. We did sign that night. After talking and looking carefully at the prospectus, i was extremly frustrated at the lack of explaination he gave me about how the fees work and thought of ending the contract ( because i have 60 days with no penalty to resiliation). To simplify the way it works is almost like a morgage… They collect all the fees in the 2-3 yrs up to 2000-3000$, but after that all the $ is invested and you can double your money. So yes it is more expensive then gic but way more profitable. Not to mention cst does guaratie a 50% return of those fees. What worries me is the annual rate of return the company make, it keeps dropping from being 2009 7.1% to 0,5% 2013, is that normal? Should that worry me? Worse that can happen is i lose all the income+fees but i can never loose my investment. But to be able to have $ for education of my child it is worth taking a risk. I had to pay mine and was 40000$ in dept after a 4 yr bachelor’s degree. Not cool! Just make sure you read all the fine prints, ask all the questions, transfers/fees/death/penalties/risk/how money return works… And always remember that $ is a trust fund for YOUR child NOT yourself, even when the money is tough! We spend more $ on cable/internet/cell phone (250$/m) than our own child’s education(100$/m) You can always cut something else other than the funds.

  18. Hi, I am a student and a recent victim of Heritage. They robbed me and my family of 10000 dollars, and like a lot of the other people here we did not see this coming. See, heritage has dirty’d the lens that society looks through and as create an honorable image about itself which it portrays to society. This is obviously not the case and it is time somebody cleans that lens and exposes Heritage’s true colors. Myself and an investigative journalist are starting a film series called Exposed. The first episode, Heritage. The idea is simple, we make Heritage famous through a viral film. Then use that fame to expose them for what they really are and focusing societies attention on these scam artist. With enough attention we can demand for a change. Currently, we are beginning to gather proof of this scam. This includes: electronic signatures, documents, interviews with people that are wiling to stand up for themselves, interviews with Heritage, aggressive sales tactics/marketing schemes and related court cases. We need your help though, this blog is a great start and there lots of people here who are also victims. People that could help in bringing down these crooks. Email me, thejalger01-at-gmail-dot-com

    • Let’s BE REAL!!!

      I can smell Group Scholarship RESP Representatives from a mile away….and posing as parents on this blog to insert positive comments just adds to the deceptive tactics. Wake up!!

      Group Plans are designed to TAKE ADVANTAGE OF FAMILIES who recognize the importance of laying a financial foundation for their children, but who either KNOW VERY LITTLE about investing and/or who are WAY TOO BUSY to devote the time to fully understanding these Plans. I kid you not. Majority of Financial Services personnel, DO NOT UNDERSTAND GROUP RESPs. Until recently, when the Canadian Securities Administrators issued new guidelines, the various Prospectuses were written in such legal jargon that made it NEAR IMPOSSIBLE TO UNDERSTAND, and especially within the 60-day “free-look” period. Scholarship Plans know this.

      The deception started at the very top, was centred on all training exercises and practices, and filtered through to the commissioned Representatives who’d often lie through their teeth to get their numbers up……but who’s going to admit that? The Scholarship Companies won’t.

      Let’s face it. Not all Representatives are deceptive, but some facts will be emphasized and some not. Many parents will not ask “the right questions” until their children are ready for university/college. Oftentimes, this is way too late and you have already lost thousands, and at that point, it may be in a parent’s best interest to stay the course, if they’re able to that is. My heart goes out to you.

      RESP Whistle