Beware of fees on RESPs
It is very important to understand exactly what fees
are going to be paid out of the RESP to the promoter, and when the fees
are taken. Normally the fees are paid before the RESP earns any
income, and a subscriber could lose all contributions to the fees if
payments to the RESP are discontinued. Fees may also be charged on
each payment out of the RESP.
In 2003, a compliance review of scholarship plan dealers was performed
by the Canadian Securities Administrators. The entire report can be
accessed on the Ontario Securities Commission website, titled
Industry Report on Scholarship Plan Dealers (pdf file). The following is a
quotation from Section 2.2 (Inadequate Disclosure) of the compliance
report:
The following weaknesses were
noted with respect to the disclosure provided to clients:
-
Sales
representatives lacked adequate knowledge of the product being sold to
clients, and its associated costs.
- Enrolment
fees were misrepresented in some cases, leading clients to believe
that the potential for loss was nil.
- Enrolment
fees and the related consequences of terminations were not always
discussed with clients.
- The
60 day grace period was not always explained to clients.
- In
some cases, there was no mention of other types of fees incurred by
the plans.
Tip: Make sure you
understand what fees will be paid by the RESP, and the timing of the fees.
Revised: July 19, 2010
