# RESP Critique



## Kim (Jan 10, 2011)

Family account for two children ages 11 & 7. Opened approx. 8 yrs ago.
I opened it at the Alberta Treasury Branch for no specific reason other than there was a branch in our town.
I try and make the minimum contribution to be eligible for government grants.
I make an apt once a year with as associate to make deposits and discuss. I get the distinct feeling it's the blind leading the blind.
This is not the only source of payment for the children's post secondary aspirations but I would like to make it as fruitful as possible.


----------



## Taraz (Nov 24, 2013)

Why would you put it into GICs instead of mutual funds or stocks? Interest rates are horrible, and a 10 to 20 year time window is long enough to mitigate the risk of market fluctuations.


----------



## Kim (Jan 10, 2011)

I'm ashamed to say I had no idea I could open an RESP outside of a bank. 
I just remember going in and having my funds shuffled into springboard GICs under advisement from the associate at the time.


----------



## davidjean (Mar 27, 2014)

My argument against resps is the low rate of returns. I'd rather invest the money into another rental. The plan being let my children manage and live in the rental as they go to trade school or college. This way they learn to manage money at age 18 instead of inheriting cash towards university that they don't appreciate and waste. 

Sorry to sound cynical.


----------



## Just a Guy (Mar 27, 2012)

Your rental doesn't give you an instant 20% ROI. The government takes a lot of money from people, I wouldn't pass up on one of the few times they offer it back.

Plus, if the resp is self directed, you can get better returns.


----------



## Siwash (Sep 1, 2013)

davidjean said:


> My argument against resps is the low rate of returns. I'd rather invest the money into another rental. The plan being let my children manage and live in the rental as they go to trade school or college. This way they learn to manage money at age 18 instead of inheriting cash towards university that they don't appreciate and waste.
> 
> Sorry to sound cynical.



We are planning to start teaching our kids to "manage money" as soon as they are out of diapers... my parents never bothered to teach me a thing about financial literacy... no savings lessons, etc... it's taken me a long time as an adult to break bad spending/saving habits. My parents aren't in a good financial position today b/c this is how they lived too...


----------



## Kim (Jan 10, 2011)

So after Taraz commented on my post I started googling. And this is exactly what happened for me...

_Scott Plaskett, a certified financial planner with Ironshield Financial Planning, says the name of the plan can be confusing. “RESP is a formal-sounding name and it sounds like a government-sponsored plan so people tend to think they can only buy it through a bank.”

Most people, he says, go into a bank and open an RESP, then buy what the bank tellers offers them, which is generally a GIC. What they should do, he added, is talk to someone who puts together an investing plan
_

I am now trying to quickly learn enough to put together an investing plan for the RESP and am trying to DIM. As I read through the threads on the forum - many times seasoned DIY investors ask " why wouldn't someone just do it themselves" and this is a prime example. Lack of knowledge, scared to death to make a mistake, overwhelming to someone like me who has very little experience ( but am reading ). It's like someone saying " Here read this book on how to do a triple bypass heart surgery and then be prepared to execute the operation by yourself".


----------



## Taraz (Nov 24, 2013)

davidjean said:


> My argument against resps is the low rate of returns. I'd rather invest the money into another rental. The plan being let my children manage and live in the rental as they go to trade school or college. This way they learn to manage money at age 18 instead of inheriting cash towards university that they don't appreciate and waste.
> 
> Sorry to sound cynical.


In a GIC, yes. I have my RESP in a TD Comfort Aggressive Growth mutual fund. I believe you can also have self-directed RESPs (e.g. buying single stocks or ETFs) if you want to do a bit more work. The important thing for us was to have US exposure, and to have it in equities - there are probably other options with lower MERs.

Edit: Questrade offers an RESP http://www.questrade.com/account/account_types/registered/resp


----------



## Kim (Jan 10, 2011)

So I just got off the phone with ATB and am going to share what I learned in case others have RESPs with ATB and also to digest what I am hearing.

My only other option than GICs, with ATB, is mutual funds ( Compass ). ATB does not offer stocks, bonds or ETFs on their own, although they might be bundled into their MFs.

I need to open a new RESP that deals in MF. After the current funds are transferred into the new MF RESP I can close the old GIC RESP.

There is a $25 plus GST / yr fee on the MF RESP. There is also the MER fees which I THINK they said on one particular example would be ball park $400. / yr not sure if I understood that correctly.

I could pick my own MFs and they suggested a minimum of 10. 

What I didn't ask but wanted to was, what would be involved with opening a new RESP at let's say a discount broker and moving all the funds out of ATB.


----------



## CPA Candidate (Dec 15, 2013)

davidjean said:


> My argument against resps is the low rate of returns. I'd rather invest the money into another rental. The plan being let my children manage and live in the rental as they go to trade school or college. This way they learn to manage money at age 18 instead of inheriting cash towards university that they don't appreciate and waste.
> 
> Sorry to sound cynical.


The type of account doesn't define the potential returns. RESPs get a top up from the government so even if you only hold cash, you've received a nice return of 20% per year. Sorry to hear you dislike free money.


----------



## Woz (Sep 5, 2013)

Kim said:


> What I didn't ask but wanted to was, what would be involved with opening a new RESP at let's say a discount broker and moving all the funds out of ATB.


Transferring to another institution is usually the same for most discount brokerages and very easy. When opening your account there's typically an additional form you fill out to transfer your funds and your new brokerage looks after the rest. You don't have to talk to your existing bank at all.

For example, here's the form if you were to transfer to TD (I don't have an account with them, just using the form as an example):
https://www.td.com/ca/document/PDF/forms/595172.pdf

ATB does appear to have a transfer out fee of $50 for registered accounts:
https://www.atb.com/SiteCollectionDocuments/Personal/AdditionalServicesandAssociatedCharges.pdf

Most discount brokerages will cover the fee for you if you transfer enough.

Also, the transfer can take a month or two so you would lose access to your funds during that time.


----------



## Charlie (May 20, 2011)

10 MFs for a $30K account? I don't agree with that advisor!

When RESPs first started there were few options for self directed accounts. CIBC investorline was the only one I could find, so we're there. At the time BMO was same as what Kim experienced -- a very limited set of BMO MFs. 

That's changed.

I believe the options avail now are almost as wide as what's avail for RRSPs and TFSAs.


----------



## Kim (Jan 10, 2011)

Update:

I phoned and spoke with Questrade about transferring my children's RESP over to them. They require a minimum $25 000 to cover the transfer fee. Which as of March 2016 would have been possible but when I explained that I still had a remaining $8K in NR GICs ( mature 2017 ) the associate explained that they can only transfer the entire amount, not some now and some later. 

suggestions?


----------



## Ponderling (Mar 1, 2013)

If you have the funds, and I know that is a 'BIG IF', you can make lump sum deposits to an RESP. 

I believe you can have more than one RESP.
So you could keep the small residue locked up in non redeemable GIC's at ATB, then start another plan with a self directed RESP. 

So save up and don't invest them with ATB RESP right away, to get the funds not locked in to more than 25k. Then you are free to open another self directed RESP. Once the locked in GIC's mature, pay the transfer fee if that gets the plan big enough that the self directed guys will waive the trustee fee. 

If you put it at the same financial institution as any other investments you have, then you might be able to pool the amounts together in terms of asking if they will pay the annual plan trustee fees since you have amount X all considered at one entity. 

I can recall the early years with an RESP. We as, two Canadian citizens paying local and any owing Canadian taxes, were living overseas.

My first son was born outside of Canada. I could not figure a way to get him an RESP started until we could get him back and apply for a SIN card for him.

Once back in Canada I made lump sum deposits to cover the years until he was in Canada, and then we got the matching grant for those past years, all at one time.


Now, 16 years later, I have transferred RESP plans twice along the way, and there is a LOT of delay, since the broker has to coordinate with the feds as to where the CSEG funds get advanced to.

I have contributed lump sums to the RESP after we paid out the mortgage on our house, so that we are maxed on the CESG, and actually maxed to the 50K per kid in the pan on contributions. The RESP funds are slated as a big pillar in my plan to try to retire from my full time job before my kids are finished with Uni.


----------



## Kim (Jan 10, 2011)

An update ...

This morning I checked and the funds that I had asked to be transferred were in the new brokerage RESP account. Not all the funds though :/
I had asked for an all in cash transfer and I thought when I had spoken to the brokerage assistant they had said they would move the $7000 that was in NR 2 YR GICs as well as the $26 000 that was sitting in a cash account. I would take a small penalty on cashing in the GICs early but they would handle it entirely.
BUT of course it did not turn out that way. They explained, when I phoned this morning to ask why not all the funds had been transferred, that there would have been a $50 fee to re register the 3 GICs ??? and that all in cash did not include the GICs. I am getting the feeling that I should have gone into the bank and cashed in the GICs myself so that they were waiting in cash account for transfer. I wish someone would have suggested that.

SO now I have 2 RESP accounts open ( which isn't the end of the world ) but makes it a bit more cumbersome to manage. And now I am assuming I am responsible for contacting the bank and telling them not to apply for any Government grants as I have already signed papers with the brokerage for them to do it. 

Is there any neat and tidy way to fix this? I am assuming that the bank will be charging me $150 for the transfer of partial funds...which the brokerage said they will cover with proof of billing.
And from the way the associate at the brokerage explained if I want to transfer the remaining money in 2017 when it matures I will have to pay another transfer fee? and of course it will not meet the minimum requirement to wave the fee and they will not cover.

Does everyone go through this where you try and improve your financial set up and have to swallow all these unexplained rules after the fact?
It seems that every time I phone a financial institution to clarify things I might not understand I get several different answers for the same question.


----------



## newuser (Sep 16, 2014)

Kim said:


> An update ...
> 
> Is there any neat and tidy way to fix this? I am assuming that the bank will be charging me $150 for the transfer of partial funds...which the brokerage said they will cover with proof of billing.
> And from the way the associate at the brokerage explained if I want to transfer the remaining money in 2017 when it matures I will have to pay another transfer fee? and of course it will not meet the minimum requirement to wave the fee and they will not cover.
> ...


Quickest way to fix it -- pay the fees.

Long way to fix it without fees -- Transfer everything back to the bank if they pay for the transfer fee, then transfer out next year. One tactic to use is to top up the account to a level that the bank will start paying for the fee. E.g. they pay for the fee when account is over $25k, but you only have $20k -- then deposit $5k more in the account before doing the transfer.

3rd way is to fight with Questrade since they promised you this but didn't deliver.

And yes, people on the front lines of banks, utilities, etc. will all tell you slightly different things. If you don't like it, fight and improve it for the rest of us. Otherwise, know that is how the system generally works and you work around it cautiously but don't get stressed out over it. The latter path is generally better for your health.


----------



## carverman (Nov 8, 2010)

Kim said:


> Update:
> 
> I phoned and spoke with Questrade about transferring my children's RESP over to them. They require a minimum $25 000 to cover the transfer fee. Which as of March 2016 would have been possible but when I explained that I still had a remaining $8K in NR GICs ( mature 2017 ) the associate explained that they can only transfer the entire amount, not some now and some later.
> 
> suggestions?


Sounds like the bank has locked your GICs for the remaining part of this year, and next year when they mature.?

if you haven't agreed to the bank rolling over the GIC, you can redeem the GICs and the interest paid on them when they mature . (hopefully the interest is paid monthly.)

The problem with GICs is that unless you invest for a few years, they pay diddly squat on return on investment these days, even the 'Ladder GICs) that some banks offer, where the first years GIC pays very little, but the GICs for each successive year after that pay about a "quarter percent" more than the previous years GIC.

IF the GICs are locked in for 1 to 5 years, the bank will be reluctant for you to cash them or transfer them, as they will have to find other money to replace what you put in, if you decided to redeem them earlier than the maturity date. There may be even some kind of penalty for redeeming them early..unless there is a "life changing event" like a death.



> With non-cashable/non-redeemable GICs, however, you are bound by the contract to hold the investment until the maturity date. In order to break the contract, you would have to demonstrate financial hardship and even then, it is at the discretion of the issuing financial institution, as they are under no obligation to let you redeem. If the issuer does agree to break the contract, there may be penalties and/or you may lose some or all of your accrued interest.


Don't allow the bank to rollover each GIC once it matures, as it's almost "free"money to the bank for their investments (mortgages/loans).


----------



## carverman (Nov 8, 2010)

Kim said:


> An update ...
> 
> I would take a small penalty on cashing in the GICs early but they would handle it entirely.
> BUT of course it did not turn out that way. They explained, when I phoned this morning to ask why not all the funds had been transferred, that there would have been a $50 fee to re register the 3 GICs ??? and that all in cash did not include the GICs. I am getting the feeling that I should have gone into the bank and cashed in the GICs myself so that they were waiting in cash account for transfer. I wish someone would have suggested that.
> ...


The way I understand it for RESP, is that if you (the principal investor) withdraw money from an RESP, early, not only will you encounter some penalties, but the gov't contributions for that invested money in the RESP that you withdraw, will be FORFEITED..
and that will be
a significant loss...better rethink this plan out thoroughly first..otherwise you may lose more than you gain at this point.



> Does everyone go through this where you try and *improve your financial set up and have to swallow all these unexplained rules after the fact?*
> It seems that every time I phone a financial institution to clarify things I might not understand I get several different answers for the same question.


Rules are rules and you have to agree to them, as these rules form a contract, especially RESP that is a registered plan.


----------



## Kim (Jan 10, 2011)

Thanks for the replies Newuser and Carverman ( why that cat?) 
In regards to the rules - I love rules and I am a stickler for following them....it's the getting to know them that kills me....each institution has their own and some that they would rather not mention freely.
I understand the rules that the money has to stay in the RESP I had hoped that it could be taken out of the GIC yet still remain in the RESP. I had even phoned the bank and they had said there would be a monetary penalty for doing such a thing. 

Anyway what's done is done - here is the " fix it" plan.

1. Call the bank and make sure that when the GICs mature next spring to have them go into the cash account of the RESP. 2. Send a transfer request to the broker asking them to take that money the day after it's deposited into the cash account. 3. Close the RESP at the bank and start investing the funds that have been transferred. ( the very hardest part )


----------



## carverman (Nov 8, 2010)

Kim said:


> Thanks for the replies.....and Carverman ( why that cat?)


That's the Chesire Cat from Alice in Wonderland. He keeps appearing and disappearing in front of her eyes or in this case the forum's 'I"s.; and offers some witty, yet obtuse comments on the situation at hand.:biggrin:

Quotes from Alice in Wonderland
--------------------------------------------------------------------------
Alice: You've gone quite mangy, cat... but your grin's a comfort. 
Chesire: 
Only the insane equate pain with success. 
Every adventure requires a first step. Trite, but true, even here
The uninformed must improve their deficit, or die.
The proper order of things is often a mystery to me. You, too? 
and 
I'm afraid I have to expel a rather ferocious hairball. You're on your own, girl. 
----------------------------------------------------------------------------------\

Actually, I am a carver at large and I support the cat rescue and Humane society... and carve cats amongst other things. 



> In regards to the rules - I love rules and I am a stickler for following them....it's the getting to know them that kills me....each institution has their own and some that they would rather not mention freely.
> I understand the rules that the money has to stay in the RESP I had hoped that it could be taken out of the GIC yet still remain in the RESP. I had even phoned the bank and they had said there would be a monetary penalty for doing such a thing.


 Ah Kim, ..er.."Alice in financial wonderland'..you have discovered there are advantages and disadvantages in the financial world.

People like GICs because no matter what happens in the economy, at least the principle invested is secure.
Disadvantage: banks know this and tend lock in your money so you can't touch it for at least a year, and pay a pittance for use of. 



> Anyway what's done is done - here is the " fix it" plan.
> 
> 1. Call the bank and make sure that when the GICs mature next spring to have them go into the cash account of the RESP.
> 2. Send a transfer request to the broker asking them to take that money the day after it's deposited into the cash account.
> 3. Close the RESP at the bank and start investing the funds that have been transferred. ( the very hardest part )


So, executing #3 you will not be taking advantage of the free gov't money that was put in with your yearly contributions to the RESP"? 



Better read this first
============




> The math
> 
> 20% of the $1,000 contribution is $200, so you will now have an extra $200 in the account courtesy of the Canadian government. This basically gives you an extra 20% one-time return on your contribution.





> $2,500 – Amount of *annual grant-eligible contribution room accrued each year starting in 2007 *or the year the child was born (whichever is later). The contribution room continues accruing up to and including the year when the child turns 17 years old. This amount is based on the calendar year and not the birth date.


$


> 7,200 – Lifetime grant limit per beneficiary. If you contribute $2,500 every year, you will hit the maximum grant level in the fifteenth year, and no more grants will be paid to the beneficiary. This limit includes additional grants available to lower income families.


http://www.moneysmartsblog.com/resp-contributions/

Now I ask you..who would you really trust? the "the smiling young man with the nice hair" representing our country, 
or
the @#$%& greedy banks that want to take advantage of you each chance they get?


----------



## BoringInvestor (Sep 12, 2013)

Hi Kim - wanted to drop by to give a message of support and kudos for taking an active interest in, and taking charge of your finances.

If you're looking for some inspiration on managing your RESP, you can follow along with my money diary on the subject: http://canadianmoneyforum.com/showthread.php/45330-RESP-tracking-couch-potato-investing.


----------



## djkelly (Feb 18, 2016)

Run screaming. A mutual fund WITH a transfer fee?! You were right in your first post: blind leading the blind. But you're now starting to gain your sight!

I had this same realization a couple years ago and decided, like @Taraz said, that 15 years is a long enough window that Index Funds should end up the wiser investment than a GIC at 1-2%. 

I opened an account at Questrade (a process that admittedly was longer and involved more paperwork than I expected after years of having bankers simply take care of it and have me sign) and transferred my RESP GIC into the new RESP account at Questrade (again, more paperwork - doable by DIY, but requires patience). Then I invested that money in ETFs, but you can invest it in anything you like - stocks, bonds, etc.

Generally I think people go with the bank GICs simply because it's much more simple to do and you're much less likely to make a mistake that ends up losing you're kids college money. But if you have a good simple investment plan you can do better this way. Good luck to you in whichever way you choose to go!


----------

