education | Financial Crooks

As I mentioned before, we didn’t start RESPs for our children until the eldest was 10 years old. Up till then we were busy paying off our mortgage and dealing with some other financial necessities. That meant, though, that we didn’t want to invest heavily in stocks or anything else that might plummet in value and take a decade to recover. After all, that eldest child will need the money in the year she turns 18 if she goes on to “higher” education. So it wasn’t till very recently that I decided we might want to start a self-directed brokerage account Registered Education Savings Plan, RESP, for them.

Why Would a Self-Directed RESP Be Worthwhile?

Again, as I mentioned before, you don’t have to buy stocks in a self-directed brokerage investment account. You can also buy good-old-fashioned GICs. The kicker is that the smallest GIC you can buy is usually $5000.

On the other hand, once you have one $5000 GIC, each year you could add any amount to it, from $1 on up. That’s because when a GIC matures in a brokerage account it is paid out in cash. You can then use that cash, plus your newly contributed cash, to buy your next GIC.

Why would it be better to buy the GICs in a brokerage account? Because the interest rates available through the brokerage account are usually better than those you can get dealing directly with a bank or financial institution. (There are some exceptions. It appears that you might get a better GIC rate dealing directly with, say, ICICI but many of these institutions do not offer RESPs.)

Of course, if you start contributing to a RESP when your child is a toddler, you have a much longer time to recover from a market downturn and you might want to buy some index funds (ETFs) with a very low expense ratio (MER) which try to capture the return of an entire stock exchange like the TSX or NYSE. You could buy units in these ETFs within the self-directed RESP brokerage account as well.

Or you could buy shares. That has a much higher risk of losing money, though.

OK, If I’m Going to Open a Self-Directed Brokerage RESP, Where Should I Go?

There are two sets of brokerages to consider:

The “Big 5” Canadian banks all have brokerages. BMO has InvestorLine. CIBC has Investor’s Edge. RBC has Direct Investing. ScotiaBank has iTrade. TD has (get this) Direct Investing. They used to be TD Waterhouse, but they recently changed their name. It may cause a little confusion!
Then there are quite a few independent or smaller brokerages. These include ones like QTrade, Questrade, Disnat, Interactive Brokers, HSBC InvestDirect, National Bank Discount Brokerage, Credential Direct, Virtual Brokers and I’m sure there are other ones whose names elude me at this time.

(I’m not very familiar with the independent or smaller brokerages so most of this article is about the Big 5. However, you can research the others using the same ideas described below.)

Narrowing Down the Choices for a Brokerage for a RESP

Stick With Your Existing Brokerage to Reduce Fees

If you already have a discount brokerage account, chances are good your best choice is to host your RESP brokerage account at the same institution. Usually this will allow you to get the lowest possible commissions on buying and selling ETFs and stocks as you can pool your capital to meet the discount requirements. (If you’re only buying GICs and/or no-load mutual funds, though, this may not matter.)

Check Minimum Investment Requirements and Annual Fees for RESP Brokerage Accounts

Many brokerages require a minimum balance in the RESP account in order to waive an annual or quarterly fee. These balances can change often, so always double check before signing up with a brokerage.

As of September, 2013, here are some of the annual RESP fees and minimum balances required to avoid paying them:

BMO InvestorLine: A minimum balance of $25,000 is required or there is an annual fee of $50.
Source: http://www.bmoinvestorline.com/home/getting-started/il/accounts/resp
CIBC Investor’s Edge: NO minimum balance is required; no annual fee!
Source: https://www.investorsedge.cibc.com/ie/features/no-fee-resp.html
RBC Direct Investing: A minimum balance of $15,000 is required but can include investments in other Direct Investing accounts, or else a fee of $25/quarter ($100/year) is charged for the RESP account.
Source: http://www.rbcdirectinvesting.com/commissions-fees-schedule.html#fees
ScotiaBank iTrade: A minimum balance of $15,000 is required but can include investments in other iTrade accounts, or else a fee of $25/year is charged for the RESP account.
Source: http://www.scotiabank.com/itrade/en/0,,3694,00.html
TD Direct Investing: A minimum balance of $25,000 is required or else there is an annual fee of $50 plus tax.
Source: http://www.tdwaterhouse.ca/products-services/investing/td-direct-investing/accounts/resp/index.jsp
http://www.tdwaterhouse.ca/products-services/investing/td-direct-investing/accounts/index.jsp

Consider Investor’s Edge For Low Balance RESP Accounts

If you only have one child and you are just starting your RESP, you may only have a small amount to invest. If it’s $5000 or more, though, you could want to get a brokerage account to get better GIC rates.

One place to check into in this situation is CIBC. As of September, 2013, CIBC’s Investor’s Edge was advertising that there is no annual fee for a RESP brokerage account.

Consider Brokerages with No Fee ETF Purchases

If you plan to buy ETFs within your RESP, you may want to consider brokerages which offer ETF purchases with no fees. Some brokerages, like Questrade, advertise no fees on all ETF purchases. Others like iTrade offer no fees on some ETFs. (Source: http://www.scotiabank.com/itrade/en/0,,4200,00.html ) You’d have to check whether the brokerage you are considering is selling the ETFs you want for no fee. Also be aware that most of these brokerages are actually refunding the fee AFTER you’ve paid it which may or may not suit you.

Not All Brokerages Offer Excellent Paperwork and Customer Service

It’s also a good idea to check public chat areas like RedFlagDeals and the Canadian Money Forum for feedback on any problems investors have been having with their brokerages. Cost is not the only factor to consider when picking a place to invest your hard earned dollars.

Check Whether the Brokerage Can Handle Any Grants Your RESP Contributions May Receive

Generally, most brokerage accounts can handle the Canada Education Savings Grant, CESG, monies.

If you are also eligible to receive other monies, such as the Canada Learning Bond or the Alberta Centennial Education Savings Plan you may not be able to use a brokerage account. Some of them juts can’t (or won’t) handle the paperwork and accounting required for these other sources of money. Be sure to check the details for each brokerage you are considering before signing up.

Which Brokerage Did We Pick?

To be honest, I still haven’t decided! That’s near the top of our financial “to do” list, though.
UPDATE: As of January 2014, we have a self-directed RESP at BMO InvestorLine. Search for posts on how it’s going!

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What do you think? Where should we open our RESP brokerage account? Where did you open yours? Please share your opinions with a comment.

Related Reading

My children have been back at school for two entire days now after the summer break. Already I have received 4 requests for money from their schools. As I look around the school yards and watch the teachers welcoming students new to the schools and new to Canada, I wonder how many of the parents will be surprised to root through their children’s backpacks and find these photocopied requests for money. I wonder if they came to Canada with the belief that public education is free in Ontario. If so, they are about to find it isn’t free where I live.

Elementary Public Education has Never Been Free in Ontario

I’ve never been surprised by the constant stream of requests for small amounts of money from my children’s schools. When I grew up in Ontario my parents faced a similar litter of papers asking for cash. I’m fully expecting it to increase as our children grow up and continue on to high school.

Typical requests include:

$5-10 to purchase a school-customized agenda
$3-15 to partially pay for drama, music, performance art and other creative performances hosted at the school itself requiring no bus transportation
$15-25 for one field trip per year or for one curriculum-related in-school activity
$1.87 – $8 for music for instrumental classes
$200+ for instrument rentals for music classes if you don’t provide your own instrument

Common Non-education-related requests include:

$2.50 and up to purchase a slice of pizza or a pizza lunch one or more times per month
$3 and up to purchase a sandwich or sandwich lunch one or more times per month
$1 and up to buy erasers, bookmarks, small posters and other trinkets from the in-library book sale
$1.99 and up to buy a book or books from the Scholastic book club flyer, monthly
$6+ for transportation to participate in a multi-school sports challenge such as a volleyball tournament
$12 and up to buy a photo of the child taken on the same day as the class photo

Charitable requests often include

$0.05 and up for school-made and delivered postcards to support Sleeping Children Around the World
$2 for the Terry Fox Run
$2 for a classroom charity project such as raising funds for a researched cause
$? as much as possible for the school fundraising goals for the year
$2 and up to buy items related to conservation or to sponsor projects like training a dog guide
canned and packaged goods for various food drives
mittens, gloves and hats for the Salvation Army winter clothing drive
prizes for various raffles and other fundraising events at the school

Ontario Schools Were Reminded They Cannot Charge for Required Materials

In 2011, Ontario school boards were reminded that they are not allowed to charge for materials required to complete the basic curriculum. The reminder was needed because lab fees, for example, for high school were getting punitively high. (One article about this reminder is Ontario targets unnecessary school fees on the CBC website. )

This has led to some rather humorous notes sent home from the schools. They explain that things like the in-school drama and music performances are not actually part of the curriculum, so the school is allowed to ask parents to pay for them. They are quick to point out, though, that these performances are ALMOST required and that your child will be left culturally stunted if they have to sit alone in the library while the rest of the school attends because you don’t pay the fee.

In my experience, my children have usually been asked to write (boring) multi-page reports about these performances and make “connections” between the events and other classroom teaching. I’m not sure what the children who can’t afford to attend these events are supposed to be handing in instead: Perhaps an individually researched report on Chopin completed while they were stuck in the library? Frankly, the events ARE part of the curriculum.

Be Sure to Budget for your Children’s School Costs

If your children are still preschoolers or are just a gleam in your eye, you may want to budget for future years for these unexpected school expenses. We spend several hundred dollars per child per year.

I think you could probably reduce that to about one hundred dollars per child, IF

you didn’t support any school fundraisers or
contribute to any of the charities the school urges your child to support, and
if you don’t let your child ever buy any of the food, trinkets or books sold at the school.

Be prepared, though, for the fact your child will stand apart from their classmates and friends. Your child will likely find it very embarrassing and awkward being “the only one” who doesn’t get pizza or a book or give a toonie for Terry Fox.

Despite the Ministry guideline that states “The dignity of every student and parent should be honoured in the school fee collection process….” I know that the actual practice can be quite different.

Consider Signing Up for a Bank Account with Free Cheques

After wasting many cheques on these school expenses, eventually I got wise and opened a PC Financial no fee chequing account. For now, there is no fee for additional cheques. Since the risk of backpack pilfering is greatly reduced by paying the school with a cheque rather than cash, I use cheques. A lot of them. If you want to do the same, you may want to read more about the PC Financial joint account we opened and consider opening one yourself.