5 years:
CST Return: 3.4%
Benchmark: 4.2%

10 years:
CST Return: 3.9%
Benchmark: 4.8%

FYI, the prospectus mentions that returns were dragged down by investments in variable-rate securities.

http://www.sedar.com/GetFile.do?lang=EN&docClass=15&issuerNo=00011658&fileName=/csfsprod/data99/filings/01369763/00000002/C%3A\SEDAR\MRFPfilingJuly2009\MRFPFamilyENJuly2009.pdf

I stand by statements I’ve made about Group RESP plans. Since they invest in a portfolio of bonds, the returns obtained (before taxes) will reflect the experience of any investor in bonds.

Now we come to fees. The CST Fund own report says that admin fees are 0.5% of portfolio. The Portfolio Management fees are 0.10%. Excluding, the impact of enrollment fees, it costs an investor 0.60% to invest in essentially a short-term bond fund. A DIY investor can buy a 5-year GIC and achieve comparable returns and pay no fees at all. Or they can invest in a low-cost bond fund for roughly the same cost.

I don’t have a problem with Group RESP reps pointing out these plans provide parents who have no inclination to build and manage a portfolio an option to save for their child’s education provided they don’t fall into the unfortunate category of children who are dropped from the plan. I also don’t have a problem if it is correctly disclosed that all that hand holding costs money that I estimate to run at around 2% annually. What I do have a problem with is claiming incorrectly that these funds can somehow magically make better returns *after* accounting for fees. It is simply not credible.

I am only liscensed to one company, and I am quite sure that is the case for all reps across Canada. You are smart to try to get the pros and cons of all the companies, but you will find most reps only know the product they represent, and some times just barely. They only learn enough about the other plans to sling a little mud, and most times it is not true. Of all the reps that I know, I think I am the only one who reads each companies prospetus every year.

That being said, unless you stumble upon someone like myself, you will have to go to sedar yourself, and read all the prospectuses. I can assist, if you like, by giving you questions to ask, and areas to look, but the rest you have to do on your own. Feel free to email me, and I will send you a list of specific questions. All financial products are sold ‘by prospectus’, and you ahve seen on this board what can happen if you just listed to a rep, without doing some reading for your self. I will help you by telling you where to look, but I won’t just give you a list, as I feel that everyone should read the prospectus of what ever product they are purchasing.

Cheers,

Mark

First of all, thanks for allowing this discussion on the site. I am sure many people really appreciate it. I know I do, and I am jsut starting to have fun.

The returns on the Group plans are in the prospectus of each one. I realize that people do not earn interest on their membership fees. Let’s be clear about this, the membership fees are not ‘kept and invested’ – they are what goes to the sales side of the organization. I just wanted to make that clear, as I have seen a few posts with regards to that being what the people are thinking. (I blame the sales reops) The membership fee returns come out of a fund of money that the scholarship plan can use to give additional money to the children when they go to school. I consider it a bonus if they go to school – not a loss if they don’t. (I esplain the plan differently.)

As far as the Canadian Bond returns, we must be getting our info from different places. I just went to http://www.bankofcanada.ca/en/rates/bond-look.html
and this is the returns that they have posted:
MONTHLY Series:
V122558: Government of Canada marketable bonds, average yield, 1-3 year
Low 04/2009 0.80
Average 12/1999 – 11/2009 3.56
High 05/2000 6.26

This says that between 1999 and 2009, the average was 3.56%.

During that same time period, the Scholarship plans did much better. (They all did better, most by fair bit.) The do so because they can invest differently. They invest in a variety of things, always trying to maximize returns, while keeping the principle as secure as they can. You may or may not be aware, but this is due to National Policy 15, that the Securities Commission instituted upon them. Basically, all the investments have to comply with the Policy, and must be very secure. To your point of index funds, they can be in those, and they are PPN’s – Principle Protected Notes. Basically, to state that these funds are the same as investing in 70 bonds and 30 equities is not correct. There are many differences.

One of the big differences to how they can invest is due to the thing that some folks like to complain a lot about here – membership fees. One of the reasons they have the fees front end is to keep them lower. Say what you will about other investments, but to be fair, this is an actively managed fund, and there are costs to that. Because the fees are front end, there are few people who pull their money out unexpectedly. This allows for much better long term investment planning. For example, a bond fund can at any time have half of the investors pull their money out at one time. (probably won’t happen, but a possibility) Basically, they have to make sure that they are able to deal with unexpected redemptions. They cannot go and lock all of their money in 10 bonds, in off chance that they have to sell them. It does happen, though.

You looked through the prospectuses, and read through their assets. Can I assume that you know the difference between book value and market value? Are you aware of stripped bonds? Because the Scholarship plans have a pretty good idea of exactly when the money will be needed, they are able to take advantage of that. They might buy a stripped bond from a bond fund that is forced to let go of it. It might have a coupon rate of 4.5%, (which will be int the prospectus) but because the Scholarship plan picked it up at a discount, when held to maturity, it will yield much more. They can do other things to improve their returns, and a lot of it is based on the fact that they know that they won’t see a huge percentage of members pulling their money out unexpectedly.

I don’t know where you are getting the 5% numbers for bonds, and judging from the Government of Canada’s website, some Scholarship plans have beat bonds by over 2 – 2.5 %. I would argue that that more than makes up for the membership fees and loss of interest on them. Judging by the last ten years, most people would have done much better in a scholarship plan than CSB’s, even without the return of any membership fees. That is just a bonus if the child goes to school. I don’t know why you keep saying that these plans will only do as well as bonds, when they have done much better in the past. With the addition of PPN (which are principle protected) they are poised to considerably out perform in the future. Throw in attrition as an additional bonus, and these plans look even better.

You make a lot of statements, which are opinion, and state them as fact. For instance, but not limited to:
“Therefore, the returns obtained by a Group RESP subscriber will be less than the fees earned on the portfolio offset by any boost from attrition.” This is an opinion statement, as I am sure you cannot see the future. As well, like I said earlier, if (I cannot see the future, but I fully expect them to) the Scholarship plan well over performs the bonds, GIC’s, etc., attrition will be a moot point, it will be just a bonus.

“Group RESP’s will earn bond-like returns” Historically they have outperformed, and as you yourself have said, the addition or the PPN’s should boost returns. I am not sure why you end up at this conclusion. Again, this is an opinion statement. It would be just as logical for you to say that you know what mortgage rates will be for the next 20 years, or that bonds will have a 5% 20 year average, 20 years from now. I have no problem with you having this opinion, but you have to realize that some people who read this will make financial decisions based on your ‘facts’. I am sure you don’t want to mislead anyone, and most people have a tendency to state their opinion as fact, I am just pointing out that it could mislead people. I appreciate and respect that you have this website, and that you allow this debate on it, so please, don’t take offence to this. That is not my intent. Believe it or not, I agree with a lot of what you say in your posts, and respect your your answers, as you are level headed, and not trying to scream or slander.

Here is an interesting thing for you to consider. Some in the industry would love to see National Policy 15 disappear, but that is up to the SC. These people would like to invest in the market, and roll the dice for the big returns. What they have found, however, is that the majority of Scholarship Plan members do not want that. They are in it because they want it safe. A lot have other investments elsewhere, and just want their children’s money safe. Another thing to think about, not everyone has your tolerance to risk. As well, a lot of families have one member who doesn’t like risk, so for the child, they go extremely safe. I switch a lot of people over from banks and mutual funds, and some of them are in GIC’s, and I see their statements. They aren’t earning 5% – closer to 0.5%. I am amazed what banks are doing, and they lock it in for years.

Obviously you are a fan of TD, their efunds, and etf’s, and they are great for those who want them. I have noticed a few people say thanks, and that they are going in that direction. What I think will be the norm, though, is that people will read your posts, and all the others, and get confused. (and a little scared) They will ‘commit’ to researching, and put it off. They will then walk into the bank one day, and a teller will recommend an RESP. Done deal, but maybe 2 years too late, and in an inferior product. Like it or not, banks and mutual funds are getting the lion’s share of the investment business. That is why the Scholarship plan people compare against them. The etf people are a select few, and to be quite honest, they probably never let a rep in the door. You have to face facts, this is less about fees, and more about wehter or not people want to do their own investments. Most people do not want to – it is as simple as that.

CC: Another thing for you to look for, are the biggest funds out there. You will find that a lot of the massive funds are secure. They aren’t giving outrageous returns, and yet they have billion dollar funds. The reason is simple, some people wnat their money safe, and your definition of safe isn’t theirs. (I am assuming that you feel stocks are safe if you have the time to ride out the usp and downs. I am not arguing that point, just showing that not everyone shares it) I have sat with people who tell me they are less concerned with returns, than they are with the though of losing money. Some people have a zero tolreance for risk.

To be quite honest, a mutual fund RESP at a bank is a better investment than what my parents had for me. (zip) I would prefer that a family start that at day one, than be scared, wait to research, and start something better when the child is 5. At a 6% rate of return, it takes twice as much money to start when the child is 5 than when the child in newborn. Starting early is key.

Another thing that slightly bothered me was an ‘ambulance chaser’ comment that I saw earlier. (not sure who posted it) The bottom line is that people usually keep their investment where they started it. I do switch a lot of people from banks and mutual funds, but half of that is because they bungle the investment so much. Not everyone who has an investment going wants to hear about a different way to do it. We want to talk to the families early because we know that if we don’t, they most likely will set up at a bank. I have no problem with someone hearing what I have to say, and going somewhere else for their RESP. I tell everything upfront, so I have no worries about someone coming to me later on saying, ‘you never told me that’. I just want the opportunity to say my piece. (and a large percentage of people do like it)

I want to finish by saying that I do feel for the people who have posted here, with the different misconceptions that they started a plan under. I do believe it is possible that you folks were deliberately misled by the sales rep that showed you the product. I have seen and heard a lot in the industry. I truly wish that the sales reps who act in this manner would exit the industry. (While I really like the company I represent, I believe that there are a few snakes among it as well.)

The vast majority, though, are very happy with their investment – they just aren’t shouting about it on the internet. If you look at the number of complaints logged against the group plan industry, it is a tiny amount versus the amount of families that are enrolled. As well, it has more to do witht the way the plan was presented/sold, than what the plan actually is. Any industry will have some bad apples, and therefore some complaints.

All I can say to the people who are reading this post, keep educating yourself, and do what is comfortable for you. For example, there is a fellow here who started a CST plan, and is now very unhappy with it. I think it is Traciatim, but I could be wrong. Simply put, if he had fully understood the plan when he was first shown it, he either would have not signed up, or not be complaining now. Judging by some of the comments that he has made, I am quite sure the plan was poorly explained to him at the time. I would be bitter as well if I felt I was misinformed or lied to. This leads me to believe that the problem isn’t with the plan, (again, not a CST booster) but with his level of understanding of the plan. The blame for this falls mostly on the sales rep, although some must be shouldered by him. I can assure you that while the industry has had some dark days, and we will still hear more about ‘I wasn’t told – this wasn’t explained’, a lot has changed in the last 5 years. The bad reps are getting weeded out, compliance is stronger every day, and disclosure much better than in the past. I believe that the worst days for the Scholarship plan industry are behind us. (for the record, the Security Commissions have been working aggressively with the group plans, and that has been very good for the investors.) If anyone is told something that they feel isn’t true, I ask them to report that sales rep to their provincial security commission.

My longest post yet – think I broke a record.

Cheers,

Mark

I will deifinitely visit Sedar website and get more details.

As you mentioned you work for Grop RESP company my question is do you work for a particular comapnay and if so which one or are you able to compare and sale units from any company.

If I deicde to buy units even for some years, I would like to deal with some one who can give pros and cons for all companies and assist to choose the best.

REGARS

Mahendra

First of all, I do work for a Group RESP company. I feel you should know that up front. The first two paragraphs are for you, the rest is for anyone who wants the extra info.

To your first question, Group vs efunds – that is entirely up to you. It depends on your risk tolerance, your investment knowledge, your willingness to monitor the investment, and your comfort level with uncertainty. Simply put, that is entirely up to you. No one can tell you what investment is best for you, as they would be assuming your personal answers to all of those factors.

To your second question, I will say one thing, you are being pretty astute, and I have had that question asked before. A lot of people try to work the plan to ‘minimize fees’. What is not thought about as this is done, is that fact that the money is paid out based on units – the more you have, the more money you get. So what you save in fees, you also lose in money from the units. Does it make sense to put in the same amount of money as another family, only to see them get more back at the end? Either way, it is obviously up to you.

One point I have to make here, to anyone listening, is that this thread is for the most part very slanted against group RESP’s. I have no problem with that, as discourse is a good thing. I do however see some instances where things are not being compared fairly.

Obviously the market has had a rocky year, and I am not out there trying to bash it. I personally believe we should all have some of our funds in the sock market or mutual funds. One of the things I find amusing is that people who are touting stocks as the best way to go quickly shrug off the last 16 months of performance, stating the we have to look at the long term. This is obviously true. On the other hand, they consistently slam CST (and I am not necessarily a CST booster) on the basis of a 4% one year return. (BTW, it is currently 1.5% after fees) Obviously, it is better to look at long term numbers. The CST 5 year return is currently 4.5%, and this is after fees. The Heritage ten year return is 6.15%, after all fees paid. (where the poster above got 2% I would love to know) The USC most recent ten year return is 5.93%, again after fees paid. Basically, they are quite a bit ahead of the ten year average of most other safe investments. (I want to say all, but there may be some other safe investments that I have never heard of, that did as good or better – I never want to say an untruth.) The ten year average rate of return on GICs, which a few folks suggest would be a better choice that a Group plan, is 3.5%. (Source: Morningstar 07.31.09) Even before the return of membership fees and attrition, these plans will probably return far more money than a GIC.

I would also like to point out that some people here are promoting what is know as a ‘high/low’ strategy. What this means, quite simply, is that you invest for the first while trying to get as high a return as possible, and then shifting to a lower risk/return investment. This is fine for some people, but you have to be aware that there are a lot of unknowns and uncontrollable factors in that scenario. Imagine for instance that an 18 year investment is high risk for 10 years, and then medium/low risk for 8. If in the last 8 years the investment were to average 3.5%, what would the first 10 years need to return in order for it to equal a 6% return over the full 18 years? Is it achievable? Can you bank on it? And then throw in just one substantial downturn at just the wrong time, and its bad news. Keep in mind that this is the same strategy that should be used for retirement, but we have many more years to ride out the ups and downs in that investment and more people are comfortable with that.

Again, as I have posted before, one mad customer will tell 100 people, and 100 happy customers might collectively tell 1. The happy group plan subscribers are not surfing the internet, looking for people to tell. The unsatisfied ones probably are. As well, the information here in all of these posts may, or may not, be factual. Please don’t make any investment decisions bases on what anonymous poster put on the internet. I have invested for both of my children in a group plan, after a lot of research and that is how I ended up working for them – I am a satisfied customer. Obviously, not every product in the world is the perfect fit for everyone. I will suggest that if you want to research, you go to http://www.sedar.com and download the prospectus of the plan you are interested in, and make an informed decision. I will point out that not all the plans are the same, and some are not that flexible when it comes time to go to school, so research is key. Know all of your options, and I am sure you will be well served by what ever decision you make. Heck, even if you end up losing a ton in the market, you will still have more for your child than my parents had for me.

If you want to ask me a question, feel free. My email is canadianfinancialwizard@gmail.com although I would prefer to answer them here, as others might have the same question.

Cheers,

Mark

Now for an investment of $2000 (1st year) + $2200 (2nd year) +$2400 ( 3rd Year) So you have 6 units and now for rest of the years you can use TD E Fund or Ultra Mira.

I will appreciate some feed back.

I am using a logic that get more units , paying lowest price As child gets older unit becomes expensive and eligibility for child’s participation is Based on Numebr of Units.

Thanks

Mahendra

I would like to here if any one has better suggestion.

Thanks

Mahendra

Unless you feel RESPs are somehow cheat the purchaser of cash, then why not sell to those who need / want them?

DAvid

Now I am at a crossroads because as an individual without a degree my career options are limited. I could make really good money selling RESPs, but I find it hard to rationalize my way into selling a product I would not buy for myself.