Beware of RESP Fees

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. There are probably many institutions that offer RESPs which do not charge excessive fees - just make sure you know ahead of time what may be charged in the future.

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 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.

In 2008, a Review of Registered Education Savings Plan Industry Practices (pdf) was prepared for Human Resources and Social Development Canada. It included a summary of inquiries and complaints received by the Financial Consumer Agency of Canada (FCAC) between March 2004 and September 2007, stating:

In general, the complaints are from subscribers and beneficiaries:

	who withdraw their contributions and find that they receive much less than they paid because of high up-front fees they may not have been fully aware of. This is the case with group scholarship providers. These subscribers also have no claim on the investment income accumulated in their own RESP.
	who try to switch to a different promoter and cannot transfer the investment income their savings have earned. This too happens with group scholarship providers.
	who find that they cannot get all or even part of the accumulated investment income in their RESP because their program of study is not eligible under their plan, their studies are too short in duration, they miss application deadlines, the term of their RESP has expired, or because of other restrictions. Most of these complaints also pertain to group scholarship providers.

Many of these complaints relate to the design of plans sold by the group scholarship providers and not necessarily the practices of the industry in dealing with its clients. It is often difficult to know whether a complaint arises because features of the plan were not fully disclosed before the consumer opened a plan, or because the consumer ignored or forgot the features, objected to a particular feature only when affected by it, did not exercise other options available, or for other reasons.

Hopefully by now these types of complaints are non-existent! However, make sure you understand the terms of the RESP.

Tip: Make sure you understand what fees will be paid by the RESP, and the timing of the fees.

Revised: October 26, 2023