stack of bindersRESPs – Scholarship programs compared to mutual fund RESPs

There are a lot of hidden fees and charges.

The skinny on Scholarship (group) RESPs

  1. There is a hidden commission – (basically your first year or two of contributions go to the sales person)
  2. The plans only invest in money market and short term fixed income securities – a very limited return on investment ( 1- 1.7%) especially when the plan is being invested in for over 5 years.
  3. There is an investment advisory team – they get paid a salary and a bonus! ( this relates to a very large portion of on-going fees and charges)
  4. The rate of return shown by these plans is misleading – if not out-right fraud! The rate of return includes the funds of people who could not make all the contractual payments or who’s child did not go to an approved school or program. Yes, they; the company have to approve what and where your child goes to school for.
  5. You have actually signed a long-term contract – you can only get out of within 60 days – after that you will face hefty charges ( the sales persons commissions and the companies fees) normally it adds up to what you have put into the plan.

Mutual Fund RESP

  • No contractual amount to invest
  • Choice of different asset classes (variety of types of mutual funds)
  • Easy to understand – contribute to and redeem the funds
  • Disclosure on fees and commissions

I recommend a mutual fund based RESP – Depending on the age of the child and what risk you are willing to accept (all investments have risk even cash has risks).

Normally: invest in equity based mutual funds and as the child nears the age they are going to enrol in school change the asset mix to be more fixed income type of mutual funds or money market.