Why You Should Avoid Group RESPs
Most parents should know that contributing to an RESP is a great way to save for your child’s education. But there’s one type of plan that gives RESPs a bad name. Group RESPs, or group scholarship trusts, are heavily marketed to new parents and immigrants at doctor’s offices and trade shows. These RESP dealers employ commission-based sales representatives to aggressively promote and sell their products. The firms are small, lightly regulated, and their salespeople may often cross ethical lines.
One of the more egregious violations took place in Toronto where a hospital clerk admitted to stealing more than 12,000 confidential maternity patient records and selling the information to an RESP dealer representative at Knowledge First Financial. She was fined $36,000.
Group RESPs also come with a long list of fees and complex rules. An investigation by the Toronto Star into Heritage Education Funds, one of the largest group RESP providers in Canada, found close to 500 complaints from customers who lost all or some of their contributions for violating contribution rules.
In January 2018, Knowledge First Financial purchased Heritage Education. Birds of a feather…
Avoid Group RESPs and Scholarship Trusts
Let’s be clear that group RESPs aren’t necessarily a scam – they’ll work just fine if you see the plan through to the end – however parents need to be cautious and read the fine print before signing up.
The flexibility of a group RESP is much different from the individual or family plans offered by your bank or credit union. Here’s how they work:
With a group RESP, your contributions are pooled with those of other people. The money your child gets is based on the amount of money in the pool and the total number of students of the same age who are in school that year. Funds are invested mainly in fixed income, such as bonds.
Usually you’ll need to sign a contract agreeing to make regular contributions to the plan over a set period. Group plans are offered and administered by scholarship or group plan dealers. They may be more expensive than individual or family plans, depending on your investment choices.
Group plans tend to have strict contribution and withdrawal schedules, meaning that if your plans change – a big possibility over 18 plus years – you could forfeit your enrollment fee or affect how much money your child can withdraw when they need it for school.
Here are the five main providers of group RESPs:
- Canadian Scholarship Trust Foundation
- Universitas Financial
- Heritage Education Funds
- Knowledge First Financial
- Children’s Education Funds Inc.
What To Ask Before You Open A Group RESP
Some Group RESP providers have fallen under scrutiny from the Ontario Securities Commission for providing misleading plan documentation. Before you choose an RESP provider, make sure you read the fine print and ask about:
- Fees for opening an RESP
- Fees for withdrawing money from a RESP
- Fees for managing the RESP
- Fees for services and commissions
- What happens if you can’t make regular payments
- What happens if your child doesn’t continue his or her education
- If you have to close the account early, do you have to pay fees and penalties; do you get back the money you contributed; do you lose interest and can you transfer the money to another RESP or different account type?
You can withdraw from a group RESP contract and get all of your contributions back in the first 60 days after receiving a prospectus. If you’re past the 60-day point, you might be better off seeing the plan through to the end. Otherwise you might pay fees upwards of $800 to $1,200 to collapse the plan during the first few years.
Final Thoughts
When our youngest child was born we signed up to receive free samples and coupons from a few different websites. A short time later we got a phone call from someone who asked if we received samples of baby formula. It turns out he was a group RESP salesman in disguise and he wanted to come to our house to discuss setting up a plan.
We avoided a group RESP plan and instead chose to open a family RESP account at our bank. Both of our children are named under this plan, so if one decides not to pursue a qualified education program, we don’t have to worry about closing an individual RESP – the benefits are simply shared by the children that do qualify.
As a young family with lots of competing financial priorities, we only contributed what we could afford – between $50 and $200 per month – for the first few years. We bumped that up as the kids got older and now we max out our annual contributions at $2,500 per child.
We like the self-directed RESP because we’re not tied to a specific contribution every month, plus we have the flexibility to contribute lump sums whenever our finances allow for it.
The lesson here is to avoid Group RESPs and Scholarship Trusts. Open an Individual or Family Plan RESP at a bank or credit union, not from the guy chasing you down in the maternity ward.
Whan our first child was born I started a plan with Knowledge First Financial just $50.00 with intentions to increase it.We had a year under our belts when I got a yearly report and noticed a $800.00 admin fee,I then read the fine print,there were other fees also….When the 2nd child was born I did an RESP with our investment manager ..No fees, no mumbo jumbo fine print,I watched my investment grow over the years and had direct access to the account.With Knowkedge First you did not know how the investment was doing until the yearly report and those fees were always there.When they started University at 19 yrs,dealing with Knowledge First was frustrating and full of roadblocks, when you called to start the process you got a different person every time,You had to fax documents and they tried to limit how much you could withdraw. They would send the cheque in the mail sometimes it would take 3 weeks .When dealing with my investment company ,it was smooth as silk,all they wanted was the documentation from the institution,the money was in the account in 2 days. My advice avoid any of these RESP companies deal with your local financial institutions,read the fine print they are glorified car salesman.On the positive side the RESP was a god send an excellent way to save for your children’s education.
Spot on commentary and good advice. The article says they are not a scam but I beg to differ. Stick with the banks or financial advisers. Regret this investment 100%.
Great message. It’s hard enough to avoid bad investment products – parents don’t need bad investment plans as well.
*edit* Just read the Star article. Holy shit – I’d say they have moved into ‘scam’ territory with some of that nonsense.
Can’t wait until your article reaches one of these unscrupulous “Advisors” and they try to justify their actions in a post. Those are always good for some interesting reading.
I started the RESP when my first son born through a colleague who was working as salesman in WFG which I find a worst company possibly you can deal with. They have no customer services and if you call you hold for Hours. The guy on phone was rude and stupid. He told me that if I want to withdraw some money I have to pay panelty and admin fees and what not. We made a huge mistake. We are stuck now and we take out money we will lose interest and pay fine too. My advice go to the bank.
Well said, Robb! I too, continue to beat the drum on how bad these group plans are. The difference between how much people have saved in a regular RESP vs. a ‘scholarship’ plan by the time a child is ready to go to post-secondary school is huge.
Steve
Great article. Group RESPs are predatory, punitive when changes are necessary, and extremely inflexible.
My kids are with CST and we are extremely happy with the product and service because it met our needs 100% and is extremely flexible. What I HAVE noticed is that you need to have a knowledgeable and organized Rep. It makes all the difference, because if you don’t understand what you’re signing or how the plans work, then the sales charge can be blind siding. Our rep answered all our management questions and was completely transparent about the fees etc., to the point of referencing everything back to the prospectus so I could see it all. This is the ONLY Scholarship Plan that seemed like it’s on the level. I am so glad they shut down Global, reading about that company was terrifying. From experience, I would also certainly caution people against the reps and product at KFF, that meeting was NOT as transparent as it should have been.
In writing this to tell people that in the year 2021 this company is doing the exact same as what everyone else wrote above despite the shopping list of complaints to the government agencies of OBSI, OSC, BCSC, FCAC!
***WARNING*** DO NOT BUY from Heritage or Knowledge First Financial. I writing this in hopes it will save someone a lot of time and money. You must remember what they sign you on is a front fee loaded CONTRACT to pay every year until grade 12. You need to google the disadvantages of GROUP RESP’s as the fine print says nothing. We bought starting in 2015 for our 2 kids. Right Away there was $3000 sales charge plus annual account maintenance charges! In 2018 my annual statement showed we had a net loss of $3500. So after 3 years of our own money $15000, CESG $3000, BCTESG $2400, CLB $1000 = $21400 our statement showed we only had $17900. We contacted TD bank and completed a 3 part transfer form, paid Heritage’s $52.50 transfer fee, and had to wait 4 months before we got our money. We only got our money when we threatened them with Kenyon Wallace, Investigative Reporter with the Toronto Star who wrote a must read article below:
https://www.thestar.com/news/investigations/2018/07/31/they-thought-they-were-saving-for-their-kids-education-but-were-shocked-to-learn-their-money-was-gone.html
We have 2 friends and workplace co workers that had the exact same problem with Heritage now a.k.a. Knowledge First Financial. Remember everything in the contract says UP TO. In the case of our friend who paid for a full 17 years, she got back 10% of the sales charge ($125). When our friend asked about the ATTRITION (money of people who quit) they said no one quit so there wasn’t any ATTRITION money.
If you are a unsatisfied client make sure you see a proper bank to initiate a TRANSFER and whatever you do DO NOT say you are CLOSING the plan. Transferring a plan will transfer your base contribution, less sales charge, less insurance, less interest on base contribution but 100% government money and all interest made on the government money will be transferred. If you are closing the plan you will lose sales charge, insurance premiums, interest on base contribution, AND all government money/interest.
If you haven’t become a sucker then run like hell. If you were a sucker like me then you can still get out of this GROUP plan and go to a proper FAMILY plan at a bank!
I set up a family RESP for my twelve grandchildren and invested in TD mutual funds. After reading about the high Mer fees I decided to switch the funds to TD Direct investing where I can use ETFs that charge only about .05% Mers. It took almost two years to complete the transfer after going through four bank advisors but finally it is done.
Recently I became concerned about what would happen if I died before the kids got their money so I spoke to a new advisor at another TD branch.The TD advisor told me that the original RESP could not be a family plan and that only siblings can be in one. This is wrong since the CRA website says itself that the children only have to be blood relatives or adopted.
It appears to me that TD advisors do not know enough about RESPs and are giving wrong advice but are so sure of themselves that they refuse to listen to a customer who has researched the product intensively.
This incident as well as the disgusting lag in transferring my RESPs would make me, if I did it again, to avoid TD.