Registered Education Savings Plans (RESPs) -> Beware of fees
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:
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:
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: May 18, 2021
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