Why this Airdrie family regrets buying into a group RESP
Longterm education savings plan comes with heavy fees for those who want to get out early
Group RESPs are longterm investments that should only be purchased after reading the fine print in detail, says a Calgary financial advisor, after an Airdrie family spoke out about why they regret their decision.
Laurena Pollock said she and her husband just wanted to do what was best for their children's future when they opened a registered education savings plan, but now they can't move their money out of it without incurring heavy fees.
The mother of two said she wanted to transfer about $3,000 from an RESP she bought into through the Canadian Scholarship Trust (CST) in April 2013, and was surprised to learn it would cost around $2,000 in fees to do so.
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Pollock said she wasn't aware of those costs when she signed up for the plan and they weren't made clear to her as a new mom.
"At the time … everything sounded amazing," she said. "It sounded like a no-brainer. Let's do this."
CST Consultants vice-president Peter Lewis said the company is transparent about its funds and associated fees.
"We spend a fair bit of time up front with families making sure that they are aware of the sales charges and aware of the fact that this is not the type of savings vehicle that you should get into if you're looking to exit it early," he said.
Pollock said she wasn't happy with the rate of return she was getting on the investment, which she began with a lump sum when her daughter was just a few months old and monthly payments after that.
She later added an account for her son but then became concerned about the how the investment was doing.
"It wasn't the best plan for actually trying to accrue interest," she said.
Read the fine print
Financial advisor Kevin Cork said there are a variety of funds to choose from and investors need to research carefully and read the fine print before deciding where to put their money, especially if the investment product is a longterm one.
"Specifically with the pooled RESP programs, they tend to be a one-way door," he said.
"The exit door tends to be 20 years down the road, so that's definitely something you want to look at."
With a pooled RESP, Cork said a good chunk of the money you get out of it will depend on "how other members of the pool are acting."
"So, if a large number of kids don't continue on with their schooling, then the ones that do will actually receive a larger benefit," he said.
By contrast, he said individual RESPs have more flexibility and the returns depend wholly on the investment choices you make within it, although that can come with more risk.
"You do need to exercise some caution with the individual RESP," he said.
A spokesperson with CTS said it is looking into the case and working with Pollock on her options.
With files from Dave Gilson