The more I learn about group RESPs, the less I like them. In the comments thread on an earlier post on Group RESP plans, a reader referred to the prospectus for the years 2000 to 2007 filed by the Canadian Scholarship Trust filed with SEDAR. I was initially excited to lay my hands on so much information – at last, I could compare past results of Group RESP with a self-directed RESP that holds fixed-income securities and make an apples-to-apples comparison between the two for a number of time periods in the past. The results would be interesting and hopefully conclusive.
Alas, it was not to be. While it’s possible to find out contribution information or EAP (education assistance payments that is made over four years to eligible students) information, it is hard to obtain both for the same plan. For instance, consider the 2007 prospectus. The Group RESP plan marketed by Canadian Scholarship Trust is called “Group Savings Plan 2001”. The contribution schedule is available in the prospectus and tells us that buying one unit for a newborn would cost $105 per year, for a 1-year old $115 per year etc. The oldest child that can be enrolled in the plan would be 12-years old for a contribution of $1,100 per year. While, the prospectus mentions that EAP of $600 was made for the 2006 year, the “Group Savings Plan 2001” was offered only in 2006 and 2007, which means the oldest child enrolled in the plan in 2006 will be eligible for EAP in 2012. The Group plans offered in years 2000 to 2002 was called the “Optional Plan”, in years 2003 to 2005 was called the “Group Savings Plan”. So, it’s nearly impossible to tell how the plans have performed over the years.
The defendants of Group RESPs point out that the portfolio is invested in an “ultra-safe” manner. But, guess what? According to the prospectus for the “Group Savings Plan 2001”, about one-quarter (24.8%) of the assets is invested in index-linked notes. A fair comparison of group plans with self-directed RESPs, going forward, would be a 75% bond and 25% equity mix. I’m convinced more than ever that a self-directed RESP invested in a diversified portfolio in a low-cost manner is more flexible and almost certain to outperform any pooled RESP plan available today.
