Tag Archives: RESP

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

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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.

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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.

Advantages and Disadvantages of Holding a Registered Education Savings Plan, RESP, Through a Bank or Credit Union

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We started our first family plan RESP at the local branch of our bank where we have one of our chequing accounts. It’s very common for parents to open an education savings plan where they bank. There are pros and cons to keeping the RESP at a bank branch, especially as the amount of money it holds grows larger: here are some of these advantages and disadvantages.

Common advantages of Holding a RESP at a Bank or Credit Union

You can speak with someone who already knows (or should know) a bit about your personal financial situation.

If there are any hiccups or delays in creating your plan or receiving any grants, your branch staff will usually want to help sort it out to keep you as a happy client for other additional services.

You can start and stop contributing depending on your budget. There is no penalty for stopping contributions.

There is usually no fee to have this type of an RESP account although always check before signing anything.

Most bank-hosted RESPs are eligible for all of the various federal and provincial matching education grants. Always check, though, before opening a plan!

You can invest easily within the RESP in

  • a daily interest savings account
  • guaranteed investment certificates, GICs
  • mutual funds offered by that bank or credit union

You can usually buy small GICs, for example a $500 one; Some brokerages require you to buy at least a $5000 certificate.

If you choose to invest only in savings accounts and GICs, you will not pay any annual “management” fees or MERs. The amount you are told you will receive, such as 2% per year for a GIC, is the amount you will get.

You can often buy the mutual funds with no initial fees or fees that have to be paid if you cash them out before some pre-set time. All mutual funds, though, have an annual management expense fee. That fee comes out of the amount you are paid each year from the fund, or from the value of the individual units of the fund. You don’t have to write a cheque to pay it.

You can often set up a steady purchase plan where an agreed amount is contributed to your plan each month and invested as you have requested.

You can get some advice about which products to invest in. The advice, however, may be biased if the representative has been told to try to sell more of a certain mutual fund than of another.

Some Disadvantages to Holding a RESP at a Bank or Credit Union

You can’t always choose a mutual fund that has a low management expense ratio and that holds the type of assets that you would like. For example, you might not be able to buy a mutual fund that replicates the performance of the TSX with a low MER.

You may have to update your risk profile and investing profile if you wish to change the nature of your investments. For example, if you have only invested in GICs in the past, you may have to fill out another form to begin investing in equity mutual funds. (Big Cajun Man even experienced this problem with his regular mutual fund savings account.)

You usually cannot buy mutual funds or GICs offered by a large number of institutions. Most often you can only buy the types of these products which have been issued directly by your bank or credit union.

You often cannot buy Exchange Traded Funds, ETFs. Or if you can, you may be limited to those offered by the bank and not those you want with low MERs.

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Did you open your first RESP at a bank? Have you been happy with the experience or have you switched to another type of RESP? I’m sure there are more advantages and disadvantages that I have over-looked. Please share your views with a comment.