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RESP with "Knowledge First Financial"
September 24, 2014
6:53 am
Save2Retire@55
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I had a 3 hours meeting with one of their representatives and the conclusions are as below. I need your input / feedback regarding if this is a good saving plan for my child's education or you have better idea. Also, I know the fees are so high but seems it's paying back at the end (unless withdraw from the plan in the middle):

If I open an RESP account for my child this month for 15 years (till she becomes 18), with a contribution of $2500 / year:

1. $43.57 would go for life insurance: This means after first payment for a plan, if for any health reasons I am not able to contribute anymore, the insurance contributes on my behalf.

2. This will give me 31.7 shares for the cost of $100 / share which means the first $3170 of contribution will go for the fees instead of generating interest

3. Based on their return charts since 1998, my $2500 / year contribution will give me $71360 after 15 years. This includes government grants of $7200, interest of 5% or little more / less, and the company top up which comes out of the interest of those who cancel their plans before maturity.

Note: The company gives out the interests from cancelled plans to customers rather than behaving like the banks by donating it to universities

4. If I contribute another $2500 / year for 3 years that will get me about 12 other shares which is another $1200 in fees but the total $7500 would be $19000 after 15 years

Their web site is http://knowledgefirstfinancial.ca/

Annual Returns as of April 2014
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Growth Record Since 1998
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Thank you

September 24, 2014
9:58 am
Brimleychen
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Yas,

First of all, don't believe those salesman talk. Secondly, make your plan simply. Thirdly, RESP is for education only, not for life insurance.

Here are what I did for my children.

1) Maximize my RESP contribution since 1995.
2) Invest all (my contribution + CESG) in long term bonds (because you know when your children need the money for the university). I used to buy strip bonds because I can buy more. The first strip bond I bought is Bell Canada, and I paid 15 cents (1995 money), and I got $1 in 2010.
3) my RESP since in more than 8% yearly compound since. It's safe and secured.

Hope this will help you. Don't gamble your RESP / RRSP on equity market.

September 24, 2014
10:25 am
Save2Retire@55
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Thanks for your feedback Brimleychen.

Yes, I know it is not a life insurance but as I said the life insurance here means "life insurance payment" in case of death or injury and not being able to pay it. Let's say I have an accident and won't be able to work for couple years, the insurance will contribute whatever plan I signed for (and in this case it is $2500 / year).

8% sounds a wonderful interest. Could you tell me what bonds did you buy? I can't find any bond with more than 5.6%. Also, is it a good idea to buy the bonds using an online platform like "Qtrade" to save on fees? Any other suggestions would be appreciated.

Before knowing this company I was about to open an online RESP with Qtrade and start by buying bonds there but that is suspended for now till I decide which one is better.

I haven't decided on how to do this investment and am open to your suggestions. That's exactly why I need your opinion and to learn from your experience.

Thanks

September 25, 2014
1:37 am
Loonie
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I don't know much about RESPs as I have never used one. However, in general I agree with Brimleychen, based on what I can see.

If you need life or disability insurance, and I would say you do if you have a young child, then you should buy them as such, probably from an insurance broker who can access several plans and rates. It's possible your sick leave or longterm disability insurance through workplace would suffice for disability but that varies so would need to be checked.
It will cost you more to have the insurance separately, but it is much better because it gives you the possibility of providing properly for your child. If you should come disabled or die, the primary concern will be providing for your child, period, never mind the relative luxuries of RESPs. You need to cover this off first.
What you are being offered is comparable to mortgage insurance. Mortgage insurance does not really make good sense unless someone is forcing you to take out the policy due to low down payment. You're much better off to get the life and health insurance privately. Buy enough of it to cover your mortgage payments.
Further, this insurance policy that comes with the RESP will probably expire once your child goes to university or the plan disbands. At that point you will be 15 years older, may have developed health problems and might have difficulty getting a new policy. Buy it now, when you are unlikely to have to answer so many health questions.

I don't think you'll be able to get 8% on strip bonds NOW because rates have come down. Similarly, this RESP fund posted MINUS 1.9% last year. They seem to be saying they make up the difference somehow, perhaps mostly through abandoned plans, so that the rate comes out to a reasonable amount somehow, but they make no promises of future performance based on past results. I couldn't find any info on what you would be invested in through this fund, and that turned me off.

September 25, 2014
12:42 pm
Brimleychen
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Yas said
8% sounds a wonderful interest. Could you tell me what bonds did you buy? I can't find any bond with more than 5.6%. Also, is it a good idea to buy the bonds using an online platform like "Qtrade" to save on fees? Any other suggestions would be appreciated.

Before knowing this company I was about to open an online RESP with Qtrade and start by buying bonds there but that is suspended for now till I decide which one is better.

Yas, you're lucky now you have the discount brokerage for the bond trading now. I normally had to call the brokers for the bonds. But the tricks are you should never actively trade on RESP. Set a plan up, be discipline, get CESG as earlier as possible, invest in the interest compound products only by maximize the term. Most of peoples made two mistakes on savings: 1) try to be smart by timing the market as hold the long term money for short term interests, or 2) risk too much on the risky products (supported by ponzi scheme).

I must admit the yield is very low now. In fact they are lowest in our life time. But against, nobody can foretell the market, and if I were you, I will just roll them in. Remember you are planning to hold them to maturity and get the principle + interest. You make decision based on existing factors (issuer risks, term, rates). I normally use http://www.pfin.ca/canadianfix.....fault.aspx as a reference and negotiate with my traders. (Of course, the trader get commissions based on your trades.)

As of today, you can have

  • Issuer: BELL CANADA Coupon: 0.0% At Maturity: May 01, 2029 Type: Strip Bond Class: Residual CUSIP #: 077906YC3 Credit Rating: A(low) Instrument Currency: CAD Yield: 4.701% Semi-Annual, 4.756% Annual Face Value: $5,000.00 Price (Per 100): $50.774 Accrued Interest: $0.00 Exchange Rate: 1.0 Estimated Cost: $2,538.70 Settlement Date: Sep 30, 2014
  • You will lend them $2,538.70, and Bell Canada will pay you back $5000 on May 01, 2029. You will see 4.756% annual yield for 15 years. Of course, a lot of people are putting their money in high interest saving account and hoping the interest rate going up, and they are right. But in the long run, they are losing the ability of beating the inflation because they forget letting savings compound at the highest possible rates.

    September 25, 2014
    1:42 pm
    Jon
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    Yas, in most cases, so call "expert" are no better than you and me, that's because market can factor in all factors that influence it immediately and it is very hard to out run the market by knowing news in advance. (The strong form /semi - strong form efficient market)

    I will stick with long terms strip bonds, just as what what Loonie and Brimley have suggest. Be advice through, strip bonds are more volatile as they only pay all their return when it mature.

    September 25, 2014
    2:43 pm
    Save2Retire@55
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    Thanks for your feedback.

    I am sorry for not being very clear on the insurance part. This is NOT life insurance. This is just payment for this plan in case of death or injury.

    I do have separate life insurance through my work and that is totally different than the insurance here.

    Yes, I contacted them regarding the -1.9% and they said that's a mistake and the real number is -0.9%.

    Bell seems to be a good choice but again it is not guaranteed. I need to do more researches on Provincial bonds and see if I can find anything better.

    I am not sure what these guys invest on but based on their sales representative, they start by buying government and provinces' bonds.

    My real concern is their high fees of a one payment in the time of opening the account which for my case will be more than $3100 for a $2500 / year for 15 years plan.

    September 25, 2014
    7:29 pm
    kanaka
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    I too know nothing about a RESP...its use, value, or ability to provide funds.

    I would be concerned about the insurance part...does it really pay when you "think" you need it ...what is in the small print. Decades ago when mortgage insurance came out.....I was convinced by an Insurance agent to not buy it. I was in the market for insurance and here is why I chose not to buy mortgage insurance....the insurance does not always fully pay out the mortgage.....the insurance ends when your mortgage is over.....so now that you are 40 years old or older, look how much the same coverage will cost you because of your age......so look at what insurance policy will cost you to cover your mortgage......buy a bit more......and have it for ever....till you die...or till you don't need it any more.....I hope my theory makes sense???

    Out of curiosity if you look at how much you want to invest per month or year.....and put it into 5 year GIC's with the hope of 3% compounding....keep rolling them over........and keeping in mind you don't need all of the funds on the first day your child goes to University.....you would have a huge sum to micro manage...and then a bit more every 5 years......no fees.....just your time to manage it all.....also could you use you and your wife's TFSA accounts as well for this purpose?

    A quick glance....tells me this is a bit of a gimmick and loaded with fees.....but I could be wrong. And a three hour session....that is longer than a pots and pan salesman or a timeshare presentation. Like I say, I know nothing....but I see the need of caution here.

    September 26, 2014
    5:02 am
    Save2Retire@55
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    Thanks kanaka. Based on their fine print, the insurance pays just in case of health problems causing injury or death. It doesn't pay anything if I lose my job or this sort of things. Not sure if this makes sense now.

    Based on their numbers, after deducting the fees, the average interest here was 5%. Of course I am obligated to a plan and should contribute yearly. In addition, if I withdraw or cancel my plan, I will lose interest which will go to others in the same pool (the pool is based on the child's birth year).

    The beauty of RESP is its government grants. Government puts 20% to maximum of $500 a year and $7200 in total. I can't get such a thing from TFSA even though we are close to maximize that.

    Thanks

    September 26, 2014
    9:19 am
    Loonie
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    I understand the value of RESP in getting government grants, and that they are therefore worth looking into.
    I think that at a minimum you should look at other RESP plans. This one appears to be invested in the stock market and has lots of complications and unanswered questions - insurance, lack of info on investments, lack of info on who protects you if Knowledge First goes bankrupt or out of business, high fees. After 3 hours, you should have ready answers to all of these things.
    I believe DUCA credit union offers RESPs. They are in southern Ontario. I am not recommending them particularly, as I have no experience, but it would be a place to start comparing. Not sure where you live. I doubt very much that you would lose everything with DUCA if you stopped contributing.
    You need to be assured that the plan is worth the risks, even with government grant. What happens if your child never goes to university? I think, but am not sure, that it can be transferred to a sibling, but if nobody goes on to further education, that you have to give back the government portion and also you would then get taxed on the returns you have made, before you could get the money back. Perhaps you discussed this with the sales rep?
    As far as I can see, there are no guarantees with this plan. Past performance does not guarantee future success. They are depending on other families dropping out in order to have backup money. This suggests that families regularly do drop out and lose all their money. It could happen to you too.

    September 26, 2014
    3:33 pm
    Save2Retire@55
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    Thanks Loonie for your feedback.

    Based on them, all their investments are Government and Provincial bonds. I also asked them about insurance and below was their response:

    "We are not a bank and since we buy federal and provincial bonds, our deposits are insured 100%, by the government. So, we are not limited to the 100K per subscriber. The only way our investment will fail is if the Government of Canada fails and does not pay their debt, which would put our economy in a free fall (Russia tried that a few years ago and made their bond payments after investors refused to invest any new money in Russia and their economy started to fail and it only took about four days for that to happen).

    In the event the Foundation or KF Financial (the marketer and administrator of the plans, owned by the Foundation) were ever to go under, the money is kept safe at RBC Dexia, our Trustee. So, we cannot take the money down with us. That is why a Trustee was put in place because that was a big concern for the forefathers who built this plan, realizing that many families would be almost 20 years before they even start to collect any money back! Lots of things can happen in the economy and financial services business so they ensured the rules included the money being held by a Trustee so nobody can take this money if the company go into trouble. The families money is still safe and the plan pays out as promised.

    All that would happen, is that if we went out of business, they just wouldn't be able to increase their plan or enroll any new children because that part of the company would be gone."

    September 26, 2014
    7:18 pm
    kanaka
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    Yas said

    Thanks kanaka. Based on their fine print, the insurance pays just in case of health problems causing injury or death. It doesn't pay anything if I lose my job or this sort of things. Not sure if this makes sense now.

    Based on their numbers, after deducting the fees, the average interest here was 5%. Of course I am obligated to a plan and should contribute yearly. In addition, if I withdraw or cancel my plan, I will lose interest which will go to others in the same pool (the pool is based on the child's birth year).

    The beauty of RESP is its government grants. Government puts 20% to maximum of $500 a year and $7200 in total. I can't get such a thing from TFSA even though we are close to maximize that.

    Thanks

    Insurance pays just in case of health problems causing injury or death.
    Hmmm so a life insurance policy for ever and not part of a package deal covers death and the ambiguous part is what is a health problem causing injury? Does it cover depression, a work injury that keeps you away from work for a year or you have to be retrained for a lesser paying job? I don't like one stop shopping when there are professionals in insurance and likely the RESP.

    I think you should shop around for both separately and even contribute to the RESP in multiple methods/institutions (banks,credit unions, or discount brokerage) ie. GIC, BONDS, ETFS OR SHARES....as suggested and also be able to adjust when necessary. And chances are as mentioned "you" can do better than what you were offered.

    September 26, 2014
    9:51 pm
    Loonie
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    I just don't feel right about this investment. Maybe it's because I don't have all the documents and I didn't meet with the sales rep, but that's where I'm at.

    If it were me, I would want to see the declaration of trust and I might even want to pass it by a lawyer who deals in such matters - another expense. I would want an impartial opinion on how well I am protected. I would also want a formal statement from them of investment strategy and holdings - a kind of Prospectus, such as you might get for a mutual fund, and I would read it very carefully. I would also want to know who regulates this business? Banks and credit unions and insurance companies are all regulated by provincial and federal legislation and have governing bodies who are charged with oversight and enforcement. Who regulates this one?

    I am not sure I understand why, if they are only invested in govt issues, why you need this plan and its fees. Sounds like a kind of mutual fund, and we certainly don't need most of them! Wouldn't it be easier, and you better off, to just go ad buy these things yourself through a bank or credit union plan? I would ask them that question and see what they say. My guess is that they would say that they are offering added benefits in terms of "insurance" and extra income in the pot from people who quit. You would need to assess the value of these things to you personally.

    September 27, 2014
    8:00 am
    Save2Retire@55
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    Thanks kanaka again. That is a good question to ask them regarding the injury part. Regarding investing in different things, I really don't have time to do that but it is something I should look into it.

    September 27, 2014
    8:05 am
    Save2Retire@55
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    Thanks Loonie. Yes, I need to see the fine prints and investment details. So far, I just heard from the sale rep without seeing any proper legal official document. This is something I should have asked them long time ago but for some reasons I trusted them (which is certainly wrong). I am glad to be part of this small online community and learn from you guys. I will check with them and update here.

    And yes, I did want to open the RESP with qtrade and buy bonds / stocks / etc directly but the only thing stopped me was the profit (the top up) by going with a group plan like this. Based on their numbers since 1998 including the economic crisis of 200X, the top ups were about 10K at the end of the plan and that's why the value of $38000 + $7200 (grants) after 15 years will be about 71K (based on them).

    Have to investigate more ...

    September 27, 2014
    10:23 am
    kanaka
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    Yas said

    Thanks kanaka again. That is a good question to ask them regarding the injury part. Regarding investing in different things, I really don't have time to do that but it is something I should look into it.

    Yas....what you are getting into sounds like a sales pitch from a salesman on a high commission rate. What credits does he have to add to his name? Have you checked this out with BBB? The time you have spent here has given you invaluable information and please don't put yourself in the position of looking back in 20 years and then realize you were short changed with growth and compounding. Have you thought of seeing an accountant or others that offer the same product? Just a quick note.....I have been using an adviser for RRSPs for the last 20 years and will phase him out and go on my own......reason why.....he gets a commission on every GIC he sets up for me and I can do better rate wise...and by going through him it has prevented me from $20,000 or more in gained interest. You may want to reallocate your "time" as the monetary reward is more than likely one of the better ones you will ever have.sf-smile

    September 27, 2014
    12:27 pm
    Loonie
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    kanaka raises a fair point. You should treat this guy like you would any financial investment professional. One of the questions that should always be clarified with such persons is, "how are you paid?" (I am not making this up to be nasty. You can find it in pretty well any guide as to how to choose an investment advisor etc.)

    September 27, 2014
    1:08 pm
    Save2Retire@55
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    Thanks again for the great info you are giving me here. I checked all the big banks and I can't really find any good plan. Even the best GIC is about 3.2%. I would be more than happy for the suggestions on where to look other than this financial company and big banks. I couple times asked if anyone worked with Qtrade or any other financial institutions and can give me feedback. Thanks again.

    BTW, I forwarded them the questions regarding the documents, insurance fine print, ... you pointed here.

    September 28, 2014
    7:59 pm
    kanaka
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    Yas said

    Thanks again for the great info you are giving me here. I checked all the big banks and I can't really find any good plan. Even the best GIC is about 3.2%. I would be more than happy for the suggestions on where to look other than this financial company and big banks. I couple times asked if anyone worked with Qtrade or any other financial institutions and can give me feedback. Thanks again.

    BTW, I forwarded them the questions regarding the documents, insurance fine print, ... you pointed here.

    I have iTRADE and they have RESP ....and they offer stocks, mutual funds, bonds, ETFS and GICs online. Yes they are 24.99 per trade, some trades are free from their posted list and they boast low rates to purchase bonds. Once you know what you would buy then decide want online brokerage is best for you. I know iTRADE is not the cheapest but I started with Trade Freedom (owned by BNS) at 9.99 and later they absorbed Trade Freedom to iTRADE. I don't do a lot of buying and selling so, I am ok with the blend of 24.99 and free trades vs using Manulife at 150 per trade.

    September 28, 2014
    11:37 pm
    Loonie
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    Let us know what you get back from them, Yas.

    There is a lot of flexibility as to what you can invest in with Qtrade, iTrade etc., but they are also riskier investments than simple GICs etc. If it were me, the only way I would take this risk if I were choosing very high grade bonds with maturities that coincide with when my child's tuition payments would be due, more or less; then it is not much of a risk; you are only risking the possibility that rates might go up in the interim, and you do know exactly what you will have in the end. If you invest in the stock market, ETFs, etc., then you are essentially depending on market timing because you have to get the money out at a specific point in time, even if it is a relatively long term, whether the market is low or high at that point. Market timing almost never works. So, then you are going to be looking at trading between now and then, to which I can only say "good luck".

    There must be other competitors that are not banks or credit unions, plans that bear some resemblance to the one you are looking at? I don't know that market though, so maybe there aren't.

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