# Canadian Scholarship Trust



## Nadkravco

Hi everyone. 

I've been reading this forum since January. Decided tonight to register to ask a question. 

Yesterday we had a Canadian Scholarship Trust rep come to our house and give us her spiel on her company's group RESP plans. She talked a mile a minute and I tried to listen intently, but there was a lot of info flying around. She said "all the information is in our prospectus, we email that to you the first week of enrollment...but no one ever reads that". 

After an hour she left; we did not sign up. I told her we'd think about it. 

I went to their website and read the prospectus. Some things she told us were off from what I read. 

I googled the company; lots of unhappy group RESP plan holders sharing their experiences in the comments of blogs telling readers not to sign up for group RESP plans. Although there were a few happy clients.

Most saying it was hard to get the money...lots of red tape....not as much money as projected....penalties for changing your contributions. 

This morning she called me and we had a 2 hour conversation on why I'm skeptical and why she believes CTS is a superior product. Her main point was your principle is protected. My main point was the inflexibility and hoops I have to jump through to get the most out of the plan.

I have a RESP set up with scotia bank right now for my DD3. I know it's not the best use of my money but I have no knowledge as how to do it any better. I now have a DS3months and I'd like to start doing this properly.

So, what's the deal? Is my gut right about group RESP's being a bad idea? Would I lose money in them? What are the fee comparisons between group and self directed? What is a good return on my money...she kept saying 5%, but the prospectus was only 3.5% the last 5 years. Should I stay with scotia or move it somewhere else?


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## Sampson

Nadkravco said:


> So, what's the deal? Is my gut right about group RESP's being a bad idea?


Yes.

Run away. Wait, she came to your house... bolt the doors.

It sounds like you've already researched this question and have serious doubts about CST. Did the rep do anything to ease those concerns during the 2nd interview? How did she explain the discrepancies between what she was trying to sell in her pitch and what you actually found out on their website?

I would take time, there is a lot of time to learn, so in the meantime, DON'T lock into any commitments until you think it is clearly the right choice.

Good luck!

FYI, we set up self-directed RESPs via TD and are maxing out government grants and investing using a couch potato style strategy. Canadian Capitalist has a great series of posts on his blog, pay special attention to the comments section for more disgruntled parents who invested into group plans.


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## CanadianCapitalist

Check out MoneySmarts blog posts on RESPs. I've done some as well which should help with some of your questions. Personally, we have SDRESPs for our kids at TD.

I don't know how any Group RESP rep can claim the funds will return 5%. The funds mostly invest in bonds, which yield about 2.5% now. That's about what you can expect from these funds today. Future returns are unknown at this point.


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## MoneyGal

Past cycles of these products have returned 5-6%. But this, of course, has nothing to do with bond returns. 

Instead, the excess return is a function of the high numbers of registrants who drop out of the RESP committment prior to fulfilling on the contractual obligations, and/or those who fail to participate in an approved course of education (note: the restrictions in these programs on acceptable PSE courses of education are stricter than for non-group RESPs). This is a classic tontine, in which the losers (those who do not participate) subsidize the winners. 

That said, the rep should not be promising future returns of 5%. She should, at most, be demonstrating that *past cohorts* have seen returns in the 5% range.


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## Xoron

Exactly what Sampson said.

The main problem with Group RESPs is that if the child doesn't go to Post Secondary education, you can (most times) kiss the money goodbye. I had this happen to friend of mine when they didn't go to an "approved" post secondary education program. (3 year trades diploma vs a 4 year degree). 

With a self directed RESP, you can easily direct the funds to a sibling. Barring that, you can (assuming you have the RRSP room) transfer some of the RESP into your RRSP. I know you have to pay back the Government grants, and I'm not exactly sure what happens to the investment gains. Here is the page from CIBC on the subject:

https://www.cibc.com/ca/education/resp.html


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## CanadianCapitalist

MoneyGal said:


> Past cycles of these products have returned 5-6%. But this, of course, has nothing to do with bond returns.


I disagree. Bond returns are the primary determinant of Group RESP returns. I recall reading somewhere that income from attrition makes up only 15% of the Group RESP payments.


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## MoneyGal

Well...not to split hairs, and I think we are ultimately saying (or are going to say) the same thing, but attrition is only a small fraction of the excess return (excess to bond returns) in these kinds of plans (but my data is quite old now; it is from the same report, though, where you got the 15% attritition figure). Here are the sources of excess return in the plans: (quoting from a HRDSC review of group scholarship plans):

The net income earned through invested contributions up to the maturity date is the primary source of funds for scholarship payments. The group scholarship payments are augmented using the following sources:

1.accumulated income transferred out of plans when they closed before the maturity date;
2.interest earned on the accumulated income of plans that closed, from the closing date to maturity;
3.accumulated income of plans that reach maturity but do not result in a full scholarship payment;
4.interest earned on the accumulated income that remains invested after the maturity date to the date at which scholarships are paid;
5.amounts that are not claimed by subscribers;
6.at some plans, investment income on contributions from maturity until they are repaid to the subscriber;
7.a surplus of revenue over cost of operations.

From the same exact report, what is the RoR on contributions to the CST plan? (Again, I am snipping from the report itself):

CST Group Savings Plan *6% effective annual rate *Includes lapse assumptions reflecting the overall attrition rates experienced by CST plans, and includes enrolment fees and depository charges


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## Nadkravco

Thanks for your replies everyone. 

Canadian capitalist, it was your blog post that helped with my decision to decline enrollment the second day I talked with the CTS rep. Thanks!

And no, the second day she was stumbling over words and contradicting herself with every second sentence. When I quoted the prospectus on something she had just told me which was incorrect....she was like "uhh what page is that on?". Then pretended she didn't misquote. She also said at year 8-9 I could stop contributing and they would top up my plan with the rest of the money I would have contributed for 18 years...the conversion plan. I'm like ok....where in the prospectus is this? Ya, no where. They don't tell everyone this....but she could get her manager to write me an email saying its true. Uh no. Will that email hold up in 8 years when I want to stop contributing? Meh.

Dodged a bullet! Thanks again!


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## Momof3

*Canadian Scholarship Trust Plans*

I have had CST RESPs for all 3 of my kids. The oldest is one 27 middle child 24 and the "baby" is 17. We started when the oldest two were 2 and 5 and put away $100/month in total for them. I found the plans were really flexible so I am shocked by what people are writing here. The oldest didn't go to school and so we transferred his plan to the middle child. No problem and no fees for doing this. She went to first yr of college and lasted a week! We got all of the principal back and the fees and one Payment for college. So about 1/4 of the interest it had earned plus top up so far. I could have also withdrawn the principle and interest and moved it to my RRSP if I wanted to but I didn't want to kiss the grant goodbye. She has been waitressing for 3 years now and just called me to say she thinks she should go back to school. I called them thinking it had been too long since I let them know what she was doing but no problem! Any time she wants to go back and retake 1st yr or just go part time she can,any trade or college is fine, full or part time,and get the next payment for school. I knew we could take out all of the interest and principle if she didn't go (or transfer it to another child) but I didn't realize she could wait this long between study years. I am posting this because happy customers don't generally take the time to post on these forums, just the unhappy ones. Many times we missed making the deposits but made them up with much flexibility. One time they asked if if I wanted to increase my monthly contributions by $20/ month for 5 months to make up the $100 I missed. Another time I asked about quitting the plan for financial reasons (husband got laid off)and they said I could get full credit for the amount I had contributed to date, stop making further payments and leave it there until my daughter was ready to start school.This was so I wouldn't lose any grant. They also gave me the option of taking up to a year off of making any deposits and and make them at the end if I needed to. I suppose there are people out there who don't follow up with things and I can see how you could loose your fees if you didn't, but I work for a bank and I know they charge fees too and you never get them back. And if she goes this year and gets her second payment we will break even with my banks GIC based RESP,getting about 6% before the grant(interest rates were higher 20 yrs. ago) If we had gone mutual funds we would have been wiped out twice! Anything after that is gravy. So yes I am very happy with my CST plans.


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