Advantages and Disadvantages of Enrolling in a Group RESP Through a Private Company

There are many companies that offer to take your RESP contributions and invest them for you. In theory, when your child begins a program of education after completing high school, they then pay your child an amount as agreed to in the contract. Companies that offer this type of RESP include Knowledge First Financial (formerly known as USC Education Savings Plans Inc.), Heritage Education Funds and others. There are definite disadvantages to this type of RESP which may easily outweigh the advantages so please read on if you are considering investing in a Group RESP through a private company.

Pros of Enrolling in a Group RESP through a Private Company

For many plans, you do not make any decisions about how the money is invested.

For some plans, the amount your child receives may be higher than expected because your child will receive some of the investment earnings due to the money forfeited by other families who had to quit the plan before they received their share of the earnings on their investments.

In other words, if some other families couldn’t afford to keep making their contributions or if their child did not move on to higher education, your family may get some of the money generated by their contributions. (If you are the one getting the extra money, this sounds pretty good: but will you be the one getting or the one losing the money?)

You can set up the contributions to come automatically out of your bank account. (You can also do this for all other types of RESPs.)

The threat of losing a large amount of their money if they fail to keep making regular contributions helps motivate some people to keep contributing even when they would rather not.

Cons of Enrolling in a Group RESP through a Private Company

I have read many, many articles about the drawbacks of group RESP plans.

For some plans if your financial situation changes and you can no longer afford to make the required monthly or annual contributions, you forfeit your future benefits and you also lose all (or almost all) of the money you contributed.

You can forfeit thousands of your own dollars by quitting a plan.

For many plans, you cannot transfer your contributions and grants to another financial institution without paying fees which are so high that you get little or nothing back from the money you contributed or from the matching government grant money.

Some plans make it difficult to get your funds if your child goes into an unconventional educational program.

Some plans make it difficult to get your funds if your child begins higher education at a younger-than-expected age.

Some plans do not make it clear at the outset what the rules will be for receiving payments in the future for your child’s education.

Some plans have very high fees.

For many plans, you do not make any decisions about how the money is invested. (Yes, that can also be listed as an advantage.)

Personally, I feel the lack of flexibility, high fees, and unclear rules make these plans not worth considering.

Internet Resources Discussing the Advantages and Disadvantages of Pooled RESPs

You can read more discussions of the pros and cons of these plans all over the internet. Here are some places to check:

A CBCNews article: Group RESPs: reading the fine print

Ellen Roseman has written

A RedFlagDeals Chat Board posting: Does anyone have any experience with Knowledge First Financial, formerly USC Education Savings Plans Inc?

A Financial Wisdom Forum post: RESP from Industrial Alliance

I’d recommend you not consider these plans at all. If you do, please, please, please do not sign anything without reviewing it with your lawyer.

Related Reading

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Did you use a Group RESP to save for your child’s education? Were you one of the lucky ones who received excellent service and a high return on your investments? Or are you one of the ones who cancelled the plan part-way through and lost thousands of your own dollars? Please share your insights with a comment.

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