Group RESP - is there any real benefit?

“RESP = Free Money; Take it! ”

To support higher education costs, the government chip-in 20% under RESP. Most Canadians take advantage of this government grant or ‘free-money” but usually fail to understand what’s offered by major companies under the umbrella of Group RESP aka Scholarship Funds. Here is a detailed comparison.

Choices for RESP

Individual or Family RESP: It’s a plain vanilla registered account that can be opened with any major bank or financial institution and can be invested into GIC, Mutual Funds or other eligible financial instruments. All contributions are eligible for government grants.

Group RESP aka Scholarship Fund: RESP products are offered by a handful of financial companies where every family enrolled in the Group Plan pools the money for about 17 years which is invested in the company’s own fund. Enrollment and funds expenses are solely determined by the company. All contributions are eligible for government grants.

Compare & Contrast

Let’s weigh the benefits of both the options under 3 categories:

1. Cost of Accounts i.e. Fees & penalty
2. Flexibility i.e.switch to other plans
3. Return on investment i.e. overall account value

Cost of Account
	Individual RESP	Group RESP
Enrollment Fee	No	Yes
Withdrawal Fee	No	Yes
Management Fee	No	Yes
Commission to Advisor	No	Yes
Missed Payment Penalty	No	Yes
Early Closure Penalty	No	Yes

Table 1: Individual vs. Group RESP comparison based on fees.

It’s clear from Table 1 above, that Group Plans charge a heavy fee to pay commission to their advisors and meet internal administrative expenses.

Flexibility
	Individual RESP	Group RESP
Switch Funds Within Same Plan	Yes	No
Switch Plan Option	Yes	No
Transfer to Another Institute	Minor Fee to no fee	Heavy Penalty

Table 2: Individual vs. Group RESP comparison based on fees.

From Table 2 above, it looks like Group Plans expects a solit commitment from the participant families and ‘change of mind’ is not on the cards.

Overall Return on Investment
	Individual RESP	Group RESP
Yearly Performance	6 to 12%	1 to 3%
Bonus on Closure	No	Trivial
Choice of Funds	Yes	No

Table 3: Individual vs. Group RESP comparison based on ROI.

As per Table 3, it’s clear that the Individual RESP plan works like any other regular investment where the contributor has a choice where the money should go and expect a fair return.

With this snapshot of apple-to-apple to comparison, the choice is obvious. So next time when someone approaches you with a ‘spectacular’ RESP scheme please ask these questions before you make a decision that will decide your kid’s future.