Still Sour on Group RESPs

29 responses so far ↓

• 1 Four Pillars // Apr 30, 2008 at 11:04 pm

  Definite ripoff.

  I just can’t understand the “safe investing” and “guaranteed” arguments - guaranteeing the principal is extremely easy - just buy mostly gics in a self-directed resp.

• 2 Cash Instinct // Apr 30, 2008 at 11:08 pm

  I do not see ANY reason why to go with Group RESPs when RESP accounts can be obtained for free with options such as TD efunds.

  Group RESPs charge a lot of fees and steal your money if your child decides (or can’t) not to go to school after high school. The conditions of the program must be looked very closely before adhering. They lock people into staying in their programs with high penalties.

  I would not consider Group RESPs even if their performance was better than mutual index funds.

• 3 Canadian Capitalist // Apr 30, 2008 at 11:17 pm

  Mike: I guess I didn’t pay attention before but I, for one, was surprised to see 1/4th of Group RESP assets in index-linked notes. Wonder if anyone is able to read the old WordPerfect prospectus. It would be nice to do an apples-to-apples comparison with self-directed plans.

• 4 Michael James // Apr 30, 2008 at 11:46 pm

  I never did open an RESP for my kids because when I investigated a long time ago, there weren’t any truly self-directed RESPs that I could find. My kids are now too old, but I’m curious: are there any RESP accounts that allow the investor to choose his own ETFs or stocks without limitations?

• 5 Traciatim // May 1, 2008 at 8:38 am

  I think regular readers know my position on CST from my other posts so I won’t goin to too much detail but I consider myself ’suckered’ by CST when my first child was born. I was 21 at the time, and a little impressionable. I should have shopped for options, but it seemed like a fine idea as explained.

  Looking back it was a terrible plan, sure it’s safe but don’t expect to see any great gains. You would probably do better with a GIC RESP ladder . . . less fees and even safer.

• 6 Four Pillars // May 1, 2008 at 8:41 am

  CC - that is surprising that they would have index-linked notes although I guess it makes sense since a fund like that should be able to handle a bit of volatility in part of the fund.

  MJ - self-directed RESPs let you invest in whatever you want. I think the only limitations are the same limitations that apply to RRSP- eligible securities ie you can’t have art, old cars etc in them…

  My observations of group RESPs:

  Very high fees - I took a close look at CST’s prospectus last year and it appears that the MER for their investment fund was approximately 5%. I calculated this by dividing the sum of the administrative fees and investment management fees by the fund total. To be honest, I didn’t think their fees were out of line since RESPs are very difficult to administer - the problem was more the small fund size ($491 million) which is a relatively small mutual fund.

  The salespeople lie: This is second hand info, but I’ve read quite a few comments by group resp clients who say that the salesperson says there are no fees and that the fund is non-profit. This is a lie - most mutual funds in Canada are non-profit but the companies that administer them and provide investment management to them are for-profit. To say the resp plan is a non-profit and doesn’t charge any fees is just not true.

  They sell the “guarantee” - this is similar to all the very expensive “guaranteed” products available from insurance companies which guarantee your principal. You pay a lot of money for basically nothing.

• 7 Al // May 1, 2008 at 8:52 am

  A group RESP salesperson got my name somehow after my twins were born. We made an appointment since I didn’t know much about RESPs at that point (I had read the gov’t pubs, but not shopped product). The sales pitch was very good. After it was done, however, something didn’t feel quite right. I took all the printed info she could provide and read in depth. As already said, what a ripoff.

  Interesting details:
  1) Commission came off upfront, around 20% if I remember correctly.
  2) It was a non-profit that held the assets, but they paid high fees to the for-profit sales company.
  3) They advertised an attractive rate of return, but it was based plan members that received ’scholarships’. These ’scholarships’ were funds that departing plan members left behind. If you didn’t do things just right, no ’scholarships’ and abysmal rate of return (not published).

  I ended up with a medium MER, well diversified TD mutual fund instead.

• 8 0xCC // May 1, 2008 at 9:28 am

  Michael: http://www.google.ca/search?hl=en&q=%22Self-directed+RESP%22&btnG=Google+Search&meta=

  http://www.tdwaterhouse.ca/services/respfeatures.jsp
  http://www.rbcdirectinvesting.com/RBC:SBnCGI71A8UAJ8A0zkg/resp-account.html
  http://www.cibc.com/ca/education/index.html
  http://www.scotiabank.com/cda/content/0,1608,CID5655_LIDen,00.html#Registered
  http://www4.bmo.com/investments/0,4629,35649_23994846,00.html

  The key is to look for a ‘Self-directed RESP”. Most of these carry an annual fee if your account value is lower than $20-$25k (which is pretty nice for the banks because there are annual contribution limits which mean that for the first few years of an RESP they are guaranteed to get their annual fee).

• 9 Canadian Capitalist // May 1, 2008 at 9:51 am

  Michael: Like others have commented pretty much every discount broker offers a Self-Directed RESP account that could hold pretty much anything. The only drawback, as oxCC has pointed out, is the fees, which are quite steep considering most RESP accounts are quite small and likely to be that way for many years initially. For our kids, we opened a TD RESP account and though the fund selection is quite limited, it’s enough diversification for a small portfolio.

• 10 Michael James // May 1, 2008 at 9:55 am

  Thanks to Mike and 0xCC for the useful information on RESPs. I guess it’s been a long time since I checked on them and found that I was limited to expensive (high MER) investments. There appear to be many truly self-directed choices now. $50/year is a little steep initially, but wouldn’t be too bad after a few years. Maybe I’ll open one for my grandkids within the next decade.

• 11 Big Cajun Man // May 1, 2008 at 10:39 am

  I did open RESP accounts for my 3 daughters and my son. I think it was a worthwhile investment vehicle but I will be moving my Son’s RESP to a self-directed one in the next few months as well. The investments that I put the Girls’ money in were way too conservative, but then again, I have been so badly burnt with investment stupidity (of my own doing) that I wanted to make sure we didn’t LOSE any money.

  –C8j

• 12 Kathryn // May 1, 2008 at 11:00 am

  I opened an RESP for my two kids in 1998 & 2000 (the years they were born) through CST and I consider that decision my biggest financial regret. My son is now 10 and has serious learning disabilities and may never go to university. Yet every month, month after month, I continue to pay these people so that I can get my $2400 back in fees when he turns 18. I will never make interest off these fees. If only I had invested it myself. And in the end all of the interest they earned off of my fees and deposits will go to other plan members and I will have to pay back the grant. If I had a family plan, I could pass it on to my daughter. What can I do now? Can I have it transfered to her?

• 13 Chuck // May 1, 2008 at 11:29 am

  We took a minimal group RESP with Heritage. I’m glad we decided to take their smallest plan with a wait-and-see approach about investing more with them.

  We received our latest fund report. The funds are earning barely over 2% net of management fees. I could have done better had I put the money into GICs at the bank.

  Makes me feel much better than 80% of our one child’s funds and 100% of the others are invested in a much better plan.

• 14 Canadian Capitalist // May 1, 2008 at 11:53 am

  MJ: The TD Mutual Fund RESP accounts that I opened for my kids that allow me to invest in TD e-Series index funds do not charge any administration fee. The only fee is the MER that range from 0.3% to 0.5%. IMO, they are an excellent option for the initial years and can then be transferred out to the true self-directed RESP account. I’ve written about them in other posts: Link.

  Kathryn: The CST prospectus mentions that you are allowed to change the beneficiary:

  “You may change your Beneficiary at any time up to Maturity as long as the new Beneficiary is under age 18 and you have provided a social insurance number for the new Beneficiary”.

  I’d recommend calling them and talking about your options.

• 15 Four Pillars // May 1, 2008 at 1:45 pm

  Kathryn - you are allowed to transfer an resp to another person. If the beneficiary you are transferring to is a blood relative of the original beneficiary then you can keep the grants and earnings etc.

  Keep in mind however the lifetime limit of $7200 of grants per child still applies, so any grants in excess of that amount will have to be returned.

  These are the government resp rules so CST might have more restrictive rules. Like CC said, give them a call.

• 16 Kathryn // May 1, 2008 at 3:55 pm

  That is the best news I’ve heard in a long time. And we do have the room. Thanks!

• 17 Canadian Personal Finance Blog » Blog Archive » Random Thoughts // May 2, 2008 at 6:46 am

  [...] our friend over at Canadian Capitalist did a piece on Still Sour on Group RESPs where he continues his discussion on the topic of Group RESPs. I added my own comment to this [...]

• 18 Al // May 2, 2008 at 7:29 am

  Kathryn,

  If I recall, there are a lot of learning opportunities that apply to the RESP plans. Your 10 year old son might not find university suitable when the time comes, but he may still wish to seek additional education from a trades school or the like. It could be worthwhile looking around for what else is out there.

• 19 Experts on Credit // May 2, 2008 at 6:04 pm

  An RESP sounds like a nightmare.

• 20 Traciatim // May 2, 2008 at 8:36 pm

  Experts on Credit, actually they are normally by far the best way to save for a child’s education. Where else can you get a guaranteed 20% return? Group plans take advantage of people who don’t know any better and then excessively charge them fees, which is why I don’t like them. Especially when there are simple and efficient ways to set them up that doesn’t take any more knowledge than setting up a group plan.

• 21 Sawyer // Dec 4, 2008 at 7:52 pm

  I’ve read all of the above comments and although all persons leaving a comment ‘profess’ to know what they are talking about…is anyone of them an RESP specialist…or did they just have their own problems with group RESPs, ie default, NSF, had other priorities than their childrens’ RESPs, etc. etc…interesting comments, I must say..but, valid? I don’t think so…Check with your banks, financial institutions, etc…MERs can be STEEP…just $100/mth for 18 yrs. with an MER of 2.1% can cost you $8000.00..did the banks, etc. tell you that? Are they returning any of your fees at the end of 18 years?? Check out their wrap fees, trailer fees, insurance, transfer fees, etc. etc…do you REALLY think they are doing this for nothing?? Wake up and get your facts straight!s though they know wha

• 22 Traciatim // Dec 4, 2008 at 11:27 pm

  Hey Sawyer, yes I’ve looked at bank plans and anything with high fees is not a good deal in my book. Take the CST group RESP, and use your same $100 a month. Have you noticed that they charge you $10.00 per year for the option to use monthly amounts? On top of this they charge 0.5% as an admin fee, up to 0.015 at a custodian fee, and up to 0.3% as a management fee. On top of all this insult, they also don’t let you earn interest in your first $2100 of deposits in order to keep you trapped once you realize the error you’ve made by signing up.

  In their annual report they declare “In 2007, our investment performance for our group scholarship plans was 4% . . . ” which is before fees.

  If you are risk averse you would be far better off in 5 year GIC ladders at any institution that doesn’t charge you fees for using them. If you actually want bonds and equities the TD E-Funds are a nice, simple, and cheap way to go. There are VERY few advantages to a group RESP.

• 23 Tim // Feb 11, 2009 at 5:54 pm

  How are your self directed funds doing right now after the stock market disaster? My group resp is doing fine.I hope your kids don’y have to go to schoool in the next 10 years beacause that’s how long it will take to recover from your self directed resp after what has happened this year!

• 24 Canadian Capitalist // Feb 11, 2009 at 7:11 pm

  Tim: My kids are 3 years old and the bulk of their education funds are in stocks (80%). So, as you might expect, the portfolio is down 22% but I’m okay with that. The point of long-term investing isn’t to check how your portfolio is doing every year — it is the end result that matters. I fully expect that stocks would have performed fine by the time they go to university. BTW, self-directed doesn’t mean you *have* to be in stocks. When kids are just a few years away from school, it is best to have most of the assets in GICs.

• 25 Traciatim // Feb 12, 2009 at 9:37 am

  Tim, like CC my self directed plan is down exactly what you would expect from it’s peak value. I’m certain over the next 14 years until my son goes to college that there will be some good years too, I hope to see you on here asking how they are doing again when you see 20% gains on the TSX in 201[012].

  My group RESP is exactly breaking even after all the fees they charge, just like they promised. Only because I signed up and had to stop contributions for my spouse to launch her business I’m down about 25% of my value on that one since they’ve confiscated the refundable enrolment fees (Hereby referred to as the ‘Lock in Fees’). Once you factor in the MER, the custodian fee, the lock in fee that gains no interest, the monthly payment fee and the low returns the group RESP basically simply protects your money. You would probably do much better with a GIC ladder in any financial institution that provide cheap RESPs if your sole purpose was to protect money.

• 26 kruller // Mar 30, 2009 at 12:18 pm

  I knew two things when I had a child. One: I wanted to save for her education, Two: I needed help. My eyes glaze over when you talk of laddered GIC’s, mutual funds, index plans, etc. I feel dumb, and you are likely to make me feel even dumber with your responses. Good thing I am very successful in my own non financial career.

  Anyway, my daughter has just finished school and received more than we could have ever dreamed of by going with the Heritage Group RESP. I saved $2000 per year and when all was said and done, my daughter got over $85,000 by the time she was finished.
  All those membership fees were paid back to me too!!

  I was able to go to sleep at night knowing that I didn’t have to worry about bulls or bears or whatever.

  Could I have done better? I have no idea. You will say I could have no doubt but I am perfectly satisfied with the choice I made those many years ago.

• 27 Canadian Capitalist // Mar 31, 2009 at 12:23 pm

  @kruller: I totally understand your point of view. If a parent has no interest or inclination to build & monitor a portfolio, then I don’t see why they shouldn’t consider a Group RESP. The only caveat I would add is to make sure they can keep up the regular contributions until the child is in University. That’s similar to someone hiring a handyman to replace the windows instead of doing it on their own. Yes, it costs money to hire a handyman but its their choice to do so.

• 28 kruller // Apr 1, 2009 at 11:36 am

  I’ll let you in on a little secret that will likely offend every one of your financial senses…… I pay someone else to do my tax return too!! It must hurt you to hear that ey? lol… really I am hopeless with this stuff!

  Thanks for the supportive response!

• 29 Lucky Girl // May 17, 2009 at 6:16 pm

  My older sister went to school on a group RESP from 1984-88…that means my dad invested in one of the really old ones that you didn’t even get your investment back if your child didn’t go to school (it was divided amongst the kids who went). Talk about faith! Unfortunately, he decided to go his own route with me, investing at the bank. When it came time to go to university, I only had 25% of what my sister had..and dad had invested the same amount of money. She was in university, I was unable to go. Couldn’t even get a student loan for what I needed (dad made “too much” money supposedly) so I decided to go to work and try and save to go to university.

  At age 18, the only job I could get was with a company that sold encyclopedias, door to door. I worked hard and sold alot of books and sometimes families would say, “Now you created a problem for us..our kids are going to be smart and we are going to have to have money to send them to university (this was the 80’s remember)”. I would tell people about the group scholarship plan that my dad bought for my older sister in 1966 and only put $9 per month in and it paid for her tuition and most of her books for FOUR YEARS. I couldn’t name the company but I knew you couldn’t get it at a bank or insurance company and it was one of those “not-for-profit” companies.

  One day, I ended up selling a set of books to the only District Manager for one of these companies, for their province! She said that they had heard about the girl selling books, door to door, advertising the company and asked if I wanted to actually get paid for it. That was over 22 years ago and not only have I personally enrolled hundreds of children in the plan I work for but I have collected on plans for younger sisters who were born after I started working with the company.

  Over the years, I was offered far more money to sell other products that have trailers and residuals for my own benefit but the products were never better then the group plans we were offering to the public. Now, keep in mind, the plan is only good for long term savers and if you see yourself touching the money before the time comes, then these plans are not for you (but then again nothing is for you because if you spend it you no longer have education funds for your child and since they are the ones picking your nursing home, don’t you think whatever “financial crisis” you are going through, hands off the RESP?). So, best of luck to all you folks who want to play the stock market or buy GIC’s at the bank. I had to buy one of those for my nephew in England since he can’t have a RESP but I feel like it’s the booby prize. I have been willing to set aside personal financial gain because I have a conscious and must believe in what I sell. That in itself, I hope gives at least a few folks a reason to investigate throughly, on their own. Don’t listen to the people who have cancelled their plans to get the money out early but the folks who have a plan and have children attending school. I mean, if they don’t go you don’t have a financial problem, just make sure you don’t have the following excuses when they DO need the money to go:

  1. Sorry, but I didn’t put your money into a secured investment soon enough and it will be at least three more years before it’s back to where it was.
  2. There was no structured savings commitment so even though I started off strong, I didn’t save enough over the years to pay for much of your education.
  3. I had an RESP but once it reached $25,000, I justified “borrowing” it to pay off our debt but was never able to put it back.

  Talk to anyone who turned down our group plan a year ago and put it in the stock market and see what they say now. Whatever you choose, do your research and invest consistently. You have eighteen years to plan so there are no excuses!! Best of luck to everyone.

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