Beware the group RESP

A Toronto couple already dealing with the death of their one-year-old daughter was recently hit with shocking news.

The group RESP they’d invested in for her would only refund 10% of their money, reports the Toronto Star’s Ellen Roseman.

The parents had put a total of $2,730 into her RESP with Children’s Education Funds Inc. But, because they didn’t have any other children they were forced to close the account.

Read: A RESP strategy that works

And got a cheque back for only $287.

So, where did the money go? An enrolment fee of $2,225.85 ate up the majority of their savings, notes Roseman.

Other deductions included insurance, a miscellaneous charge, a depository fee, interest, a CESG administration fee, and a foundation administration fee.

Many clients don’t know that group RESPs are less flexible than self-directed plans offered by banks. Companies that sell group RESPs download a variety of costs onto contributors right away, rather than spreading out costs over the years, explains Roseman.

Read: Case study: Help clients with education plans

In this couple’s case, they had to fight to get their money back while still dealing with the loss of their child. They eventually got a full refund due to the special nature of their circumstances—a bittersweet end to a tragic time.

Read: RESP? There’s an app for that

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.