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Global RESP
December 24, 2015
3:49 pm
Javy
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I started two RESPs for my two children long time ago with a company named GLOBAL RESP. For financial reasons I had to stop the contributions. I am trying to obtain back the contributions I made to pay for college for one of my children who is now 18 and applied to college.
The answer I got from the Globalresp representative is that the money I have available is what I contributed minus $3,102 deducted as "Sales Charges Fees".
Overall I am getting much less than I contributed. I email back requesting at least the total amount I contributed, they answer that I signed a contract and those were the terms.
I guess, as a Newcomer, I was naïve and signed a contract without reading the fine print.

My question:
Is that legal?
Can GLOBALRESP do that?
Why the government allows such companies to take advantage of uninformed people?

December 24, 2015
7:35 pm
Norman1
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Unfortunately, it is legal and, yes, Global RESP Corporation can deduct $3,102 as sales charges if that is what the signed contract says they can do.

I wrote earlier about group RESP plans in RESP with "Knowledge First Financial".

Like financial commentator Gordon Pape, I don't think group RESP plans are a good way to save for a child's education. One of the things I found was

A 2008 study of RESPs done for Human Resources and Social Development Canada had some unkind things to say about such group RESP:

"There is a significant risk that participants in group plans end up in a worse financial situation as a result of their participation," it said.

December 24, 2015
7:44 pm
Bill
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Trust me, it's not just newcomers who are naïve. But as an adult, you are responsible for your decisions and the contracts you enter into. The "government" is not responsible for checking every transaction adults freely enter into.

December 24, 2015
10:12 pm
Loonie
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One does have to read and understand the fine print and act accordingly.
However, there is clearly a regulatory role for government here, which they have apparently not yet taken up. I suggest you speak to your Member of Parliament about this. It may be too late for your situation but not too late to do something to protect others in future - especially when they obviously already knew that there was a problem as early as 2008. The new government seems to be of a mind to fix things, so now's the time to draw this to their attention.

Government offers protection to consumers in many ways, including through oversight of financial services, and the RESP industry should be better regulated. Gouging clients is not acceptable. The government created the environment in which these plans came into being and from which the industry has made a lot of money, so they should clean it up with better regulation.

December 25, 2015
6:26 am
Saver-Mom
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Years ago I signed on with Canadian Scholarship Trust, which I believe is the largest RESP group plan. I was forewarned by the rep about the initial fee to buy into the plan which would not be lost as long as I continued to deposit to the plan on a regular basis. The plan invests in conservative products, and expected to pay out between 4 to 6% growth overall. In recent years it was probably hitting closer to 4%. The accounting has always been a bit of a mystery to me but now that the plans are maturing, I'm happy with the returns and that I haven't had to do any maintenance of this account other than writing a yearly cheque. The government grants are very generous and they alone are a good enough reason for every parent who can possibly do so to have an RESP.

December 25, 2015
9:54 am
Norman1
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The government grants for RESP contributions are generous. But, the grants are given out to contributions to all RESP's and not only the contributions to the group RESP's.

The returns for who are actually able to make all the payments in their signed contracts are attractive because of the forfeitures from parents, like Javy, who could not. In a ten- to fifteen-year period of the contract, it is not uncommon for the parents to have unexpected expenses or a job loss.

Going forward, 4% per year return is a pipe dream. The group plans invest the money in government bonds. Ten years ago, it was possible to buy longer term government bonds that may have returned 4% to 6%. Not now.

Currently, a Government of Canada bond that matures in 30 years returns just 2.13% per year. That's before commissions and before any of the management fees charged by the group RESP plans.

Of course, the plans can't invest in 30-year government bonds because children don't start university when they are over 30 years old. They probably buy something like 10-year bonds. Currently, such 10-year Government of Canada bonds return just 1.37% per year.

After subtracting commissions and management fees, I don't think parents who join one of those group RESP plans now are going to end up with much of a return, even if 50% of the parents drop out and the forfeit their share of the investment income.

December 25, 2015
10:05 am
Norman1
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Loonie said
...
Government offers protection to consumers in many ways, including through oversight of financial services, and the RESP industry should be better regulated. Gouging clients is not acceptable. The government created the environment in which these plans came into being and from which the industry has made a lot of money, so they should clean it up with better regulation.

According to Toronto Star (January 15, 2013): New rules will force RESP providers to disclose risks, the provincial securities regulators agreed to new rules that were to be effective in May 2013.

The group RESP plans are still allowed to "gouge". They just have to disclose it better: Canadian Securities Regulators Adopt Amendments to Improve Scholarship Plan Disclosure for Investors.

December 26, 2015
12:00 pm
Javy
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Thanks everyone for your opinions. I understand now that I made a very bad decision when signed with GLOBAL RESP. I guess what I have to do now is salvage whatever I can, taking away the contributions I made for my younger child too, who is now 14, as it is in the same situation (had to stop payments due to financial situation), then they will take away another $3,102 Sales Fees. Which make my overall losses $6,204 plus other fees (not counting potential gains).

It is sad for me to see how easy my hard earned money that I hope was for my children education changes hands, all within legal terms.

I know it is late for me, I will have to pay for my mistake, but I probably will write to my member of Parliament about it (thanks to Loonie for the advise). As well if I have time I will expose what happens to me in a couple of forums. It can help others to avoid same mistake I made. It is not late for other people with small children who are thinking to open RESPs.

December 26, 2015
2:26 pm
Norman1
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Javy said

Thanks everyone for your opinions. I understand now that I made a very bad decision when signed with GLOBAL RESP. I guess what I have to do now is salvage whatever I can, taking away the contributions I made for my younger child too, who is now 14, as it is in the same situation (had to stop payments due to financial situation), then they will take away another $3,102 Sales Fees. Which make my overall losses $6,204 plus other fees (not counting potential gains).

It is sad for me to see how easy my hard earned money that I hope was for my children education changes hands, all within legal terms.

I know it is late for me, I will have to pay for my mistake, but I probably will write to my member of Parliament about it (thanks to Loonie for the advise). As well if I have time I will expose what happens to me in a couple of forums. It can help others to avoid same mistake I made. It is not late for other people with small children who are thinking to open RESPs.

Group RESP plans are provincially regulated. So, it would be better to contact one's provincial member of legislature instead of one's federal member of Parliament.

I sympathize with you for your $6,204 loss. If the payments you were convinced to sign up for were unsuitable and obviously unsustainable for you, you may be able file a complaint with your provincial securities commission.

Sadly, your story is not that uncommon. Last year, Loonie found this CTV Toronto story about another parent facing a similar situation ($3,100 loss to fees):

CTV Toronto: Saving for your child's education: What you should know

After CTV got involved, the company, Knowledge First Financial (formerly USC Education Savings Plans), decided to return all of the parent's contributions.

December 26, 2015
4:44 pm
Loonie
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I think there is a role for the Federal government here, or there ought to be, although I was not entirely sure when I suggested contacting an MP.
I think it's the Federal govt that provides the matching grant, is it not?
In fact, the scandal may be even worse because, as far as I can make out, when your plan folds, the gov't's contribution is also lost. In other words, taxpayer dollars are lost. If so, the auditors should be interested in that, ultimately, and perhaps the ombudsman where they exist. The matching grant is called the Canadian Education Savings Grant according to RBC site, so it sounds Federal.

Perhaps you should contact both of your legislators.

December 26, 2015
9:41 pm
Norman1
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Yes, the Canadian Education Savings Grant (CESG) comes from the federal government. But, the group RESP plans involve buying units of a trust or a pool. Those units are considered to be a kind of security, like the units of a mutual fund. So, the units, how the units are sold, and the fees charged for the units are regulated by the provincial securities commissions.

Should an RESP account be closed (instead of transferred to another RESP), the CESG money will be lost, but only to the parents and the child. The CESG money and any earnings from the money are actually returned to the federal government.

December 27, 2015
2:34 am
Loonie
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It is clear that RESPs exist under various terms in the federal Income Tax Act. There are a slew of rules about how the promoter must construct them. The promoter must present their plan proposal to CRA for approval.

So, to my mind, this means that CRA could easily have stricter rules if it wanted to, governing the conditions under which individual plans can be closed by the promoter unilaterally. At the very least it could be in consultation with provincial authorities about how to improve the situation for the benefit of Canadians.

I wonder if anybody actually checks to see that the CESG money is always returned to the government when an RESP is closed. As far as I can see, there is no requirement to notify when it is closed.

Further, the wording on returning money to the Feds is surprisingly vague. According to CRA " 67. The trustee may have to repay CESG money to HRSDC if: the RESP is terminated or its registration revoked;"... (my emphasis). (but they equally may not have to?) CRA is perfectly capable of using stronger language.

Section 65 says "If the beneficiary does not pursue post-secondary education, the CESG is returned to the government" but it does not say what happens if the student DOES pursue post-secondary education but is denied use of their contributions.

It would be interesting to see if the auditor-general has looked at returns of CESG monies. I would be interested in knowing if there are any, how much, which institutions, and whether this is ever checked.

I would not be in a hurry to trust that the promoters necessarily do this, given their other practices.
http://www.cra-arc.gc.ca/tx/nd.....u-eng.html

CRA rules, Section 37, says "(f) the Minister of National Revenue must have no reasonable basis to believe the plan will become revocable."
Further, "62. The Minister of National Revenue can revoke the registration of an RESP if: (a) the plan does not comply with the rules for registration (see 37 and 38);"... Some may feel that this applies to the "big" plan, not the individual plan, but that is not clear to me.

In any event, what is clear to me is that there are a lot of rules governing these things, and more would be in order.

Interestingly, this CRA document does not appear to even contemplate the possibility that a plan might be closed due to the promoter's self-serving wording of the contract. At every instance, CRA provides extensive rules about what is to happen to the money. They approve these plans, so they should regulate them better so that people don't get scr*wed.

I would still write to both MP and MPP. Media contact might not hurt either in an individual situation, but, really, it's the regulations that need to be changed to protect Canadians.

There is no other "investment" that evaporates in this way, as far as I know, and that has to be a concern of the provinces. The closest thing I can think of that parallels this is if you leave money in a bank account and forget about it for long enough. The institution will start deducting an annual fee and then send it eventually to the Bank of Canada until you or your estate eventually retrieve it. Some are there are very long time. But that does not compare to this RESP scam.

Ontario, at least, is in the process of a big clean-up of the securities system in terms of sales, transparency, etc., so they should be looking at RESPs at the same time.

An alternative would be to scrap them altogether. These issues have really made me think about why RESPs even exist. Why should students whose parents/relatives/friends happen to have had enough spare cash to contribute to RESPs have better access to government funding for their educations through CESG money anyway? - let alone the skimming done by the promoters. If families are able to save for education, great. Just do it. The vulnerable who might have fallen for one of these ill-considered group plans will no longer get stung. Everybody will get their money back if they invest conservatively. And, if the kid doesn't go to university, you are no worse off and no hassles getting it back to fund your 25th anniversary round-the-world trip!sf-wink

December 30, 2015
6:37 pm
Saver-Mom
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Loonie, I love your clear thinking and thoughtful posts. When can we vote for you?

December 30, 2015
8:30 pm
Loonie
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Aw, shucks!sf-embarassed

Thanks, Saver-Mom.

I'll be sending you my nomination papers... !ol

January 1, 2016
11:04 am
Norman1
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Loonie said

It is clear that RESPs exist under various terms in the federal Income Tax Act. There are a slew of rules about how the promoter must construct them. The promoter must present their plan proposal to CRA for approval.

So, to my mind, this means that CRA could easily have stricter rules if it wanted to, governing the conditions under which individual plans can be closed by the promoter unilaterally. At the very least it could be in consultation with provincial authorities about how to improve the situation for the benefit of Canadians.

The federal Income Tax Act deals mainly with the taxation of the plans and what kinds of investments are allow in them.

Sure, stricter regulation can be done. But, usually pricing (commissions and fees) are not regulated and left up to the market to decide. What is usually regulated is the level of disclosure of those costs.

I wonder if anybody actually checks to see that the CESG money is always returned to the government when an RESP is closed. As far as I can see, there is no requirement to notify when it is closed.

Further, the wording on returning money to the Feds is surprisingly vague. According to CRA " 67. The trustee may have to repay CESG money to HRSDC if: the RESP is terminated or its registration revoked;"... (my emphasis). (but they equally may not have to?) CRA is perfectly capable of using stronger language.

Section 65 says "If the beneficiary does not pursue post-secondary education, the CESG is returned to the government" but it does not say what happens if the student DOES pursue post-secondary education but is denied use of their contributions.

It would be interesting to see if the auditor-general has looked at returns of CESG monies. I would be interested in knowing if there are any, how much, which institutions, and whether this is ever checked.

I would not be in a hurry to trust that the promoters necessarily do this, given their other practices.

The wording is intentional as the CESG does not always have to be returned when an RESP is closed. CESG does not have to be returned when an RESP is closed after the assets has been transferred to another RESP for the same child beneficiary.

I also don't think the CESG needs to be repaid when money in the plan is lost because of poor investment decisions. A misguided parent could have opened a self-directed RESP and invested both the contributions and CESG into Nortel shares. sf-surprised

January 1, 2016
11:25 am
Norman1
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Loonie said
...
An alternative would be to scrap them altogether. These issues have really made me think about why RESPs even exist. Why should students whose parents/relatives/friends happen to have had enough spare cash to contribute to RESPs have better access to government funding for their educations through CESG money anyway? - let alone the skimming done by the promoters. If families are able to save for education, great. Just do it. The vulnerable who might have fallen for one of these ill-considered group plans will no longer get stung. Everybody will get their money back if they invest conservatively. And, if the kid doesn't go to university, you are no worse off and no hassles getting it back to fund your 25th anniversary round-the-world trip!sf-wink

There is history for RESP's. I think they are for tax deferral and income splitting.

No taxes on the investment earnings while they are in the RESP.

When the time comes for the beneficiary to start his or her eligible studies, the investment earnings, CESG, Canada Learning Bond money, and any provincial educational savings grant money can be withdrawn as Educational Assistance Payments (EAPs). The payments are added to the taxable income of the student beneficiary and not to the taxable income of the parent subscriber.

Student would have personal amounts plus tuition, education, and textbook amounts that would offset most, if not all, of the taxes on the EAP withdrawals.

The original RESP contributions may also be withdrawn. Such withdrawals are treated as tax-free refund of contributions.

I wrote earlier about the six types of payments from the five different portions of an RESP.

January 9, 2016
9:31 am
Save2Retire@55
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I opened RESP for my children with Knowledge First Financial a little over a year ago. I contributed $5000 for 1 child and $1000 for the other child. They deducted about $950 for the first and $240 for the second child. However, so far the return was as they promised of 4.8% (not considering the first deductions but taking into account the yearly fees). So, if this keep happening for 10 more years, I think, I can get the first deduction back plus this is a group plan which means I can get benefits of others cancellation (if at all anything).

Anyway, I stopped contributing there due to their high deductions and started using different ETFs which has been working very well now even with this financial crisis situation as I am diverging my ETFs between Bull and Bear market and readjust accordingly. Just need to be proactive.

I find trusting any money manager in this economy is a loss plan no matter what unless it is a fixed CIG or something like PeoplesTrust TFSA of 2% (which was 3% a year ago).

Sorry to hear about your lost but that's normal when it comes to investing. Money comes, money goes. Hope you can get it back one way or another.

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