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Email this12:57 pm
November 5, 2020
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Norman1 said
What about the $6,000 of government grants?Those grants are additional contributions and are not income from the investments.
One needs to account for all the external cash flows for the rate of return calculation. That was the mistake made by the Beardstown Ladies investment club when they did their rate of return calculation and started claiming they outperformed the S&P 500.
That's a great point. I ran the numbers again, this time entirely excluding the grants, just for simplicity, and assumed that their take was not from the grants or grant income.
My contributions were $32K
Income on my contributions was $19K
So my contributions + income TOTAL = $51K
They skimmed $5600 (or 11% of my TOTAL grrr)
Investment calculator says this is a 5.5 rate of return (excluding grants and grant income) given my monthly contributions of $150.
Have I missed anything else?
1:45 pm
April 6, 2013
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That doesn't match what your statement says:
Plan Contributions 31,860
Enrolement sales charge paid -3,709 (this is the evil "legal scam" amount I take it)
Insurance premiums -561 (also evil)
Depository fees -115 (a little evil, for sure)
Net contributions 27,474Government Grants 6,000
Income earned on net contributions 18,934
Income earned on grants 4,631
Total income 23,565Account Total 57,046
Your contributions are $31,860 and not $30,600.
Without the grants and income on the grants, the total would be
$57,046 - $6,000 - $4,631 = $46,415
and not $50,712.
- $100 initial
- $150 per month for 18 years (216 payments)
- $46,415 at the end
means a 3.845% per annum return.
But, there is still something wrong. $150 per month for 18 years is $32,400 of contributions and not the $31,860 in your statement!
3:17 pm
January 3, 2013
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Bill said
To me this is not a scam, there's no fraud here. Some grown-ups now regret they weren't careful enough before freely entering into a not-as-profitable-as-they-thought-it-would-be legal contract so now they throw out an accusation of scam, but sayin' it don't make it so.
Bill - You are not getting the point 🙂 There are so many legal scams going on in the country including taking tax money to pay high salaries and benefits to government employees and to support failed companies like Bombardier etc. This is just another example. It is totally SCAM to take 25% of my money toward fees. And if you read the whole thing I said you can realize I didn't say it wasn't my fault. Indeed it was but the same way the government protects all kind of practices, they should put rules and protect people like me. Also there are rules against this practice in QC but not the rest of Canada.
6:55 pm
March 30, 2017
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Norman1 said
That doesn't match what your statement says:Plan Contributions 31,860
Enrolement sales charge paid -3,709 (this is the evil "legal scam" amount I take it)
Insurance premiums -561 (also evil)
Depository fees -115 (a little evil, for sure)
Net contributions 27,474Government Grants 6,000
Income earned on net contributions 18,934
Income earned on grants 4,631
Total income 23,565Account Total 57,046
Your contributions are $31,860 and not $30,600.
Without the grants and income on the grants, the total would be
$57,046 - $6,000 - $4,631 = $46,415
and not $50,712.
- $100 initial
- $150 per month for 18 years (216 payments)
- $46,415 at the end
means a 3.845% per annum return.
But, there is still something wrong. $150 per month for 18 years is $32,400 of contributions and not the $31,860 in your statement!
trhaynes said
That's a great point. I ran the numbers again, this time entirely excluding the grants, just for simplicity, and assumed that their take was not from the grants or grant income.
My contributions were $32K
Income on my contributions was $19K
So my contributions + income TOTAL = $51K
They skimmed $5600 (or 11% of my TOTAL grrr)
Investment calculator says this is a 5.5 rate of return (excluding grants and grant income) given my monthly contributions of $150.Have I missed anything else?
I would also just assume the govt grant is being "deposited monthly" to calculate actual return. Reason being the govt grant is also being invested and earn you a return as well. So instead of using $150 per month, use $150+$28 as ur monthly contribution to calculate the actual return they are able to "generate" for your money (the grant is ur money too)
12:20 am
November 18, 2017
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trhaynes: (Message 55) Another oopsie - that $277 yearly can't be considered spread out over all the years of the RESP because you have to pay it all up front, where the future value of the cash is highest AND you don't get to earn interest elsewhere on the monies you WOULD have not had to disburse until the appropriate year.
That formula with the eighteenth root is a monster, even to a math degree and computer geek like myself! Seriously, the only safe way to avoid all time-value errors is with a spreadsheet making calculations for each period. Yes, one CAN calculate formulae for such things, but they still don't let you allow for changes to the way things work (or don't) as time goes on. 18 years is a long time, and look at how many tax and investment rules have changed!
RetirEd
RetirEd
7:24 am
November 5, 2020
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Norman1 said
That doesn't match what your statement says:Plan Contributions 31,860
Enrolement sales charge paid -3,709 (this is the evil "legal scam" amount I take it)
Insurance premiums -561 (also evil)
Depository fees -115 (a little evil, for sure)
Net contributions 27,474Government Grants 6,000
Income earned on net contributions 18,934
Income earned on grants 4,631
Total income 23,565Account Total 57,046
Your contributions are $31,860 and not $30,600.
Without the grants and income on the grants, the total would be
$57,046 - $6,000 - $4,631 = $46,415
and not $50,712.
- $100 initial
- $150 per month for 18 years (216 payments)
- $46,415 at the end
means a 3.845% per annum return.
But, there is still something wrong. $150 per month for 18 years is $32,400 of contributions and not the $31,860 in your statement!
Those are some great corrections, here is the explanation:
Your "no grants" total of $46,415 includes the fees & insurance.
My "no grants" total of $50,712 did not include the fees & insurance.
So, yours is probably the more useful total when calculating my ROR, because those fees & insurance are definitely not getting me any return!
Regarding my contribution amount: I started the plan a few months after our child was born, and ended it a little after his 17th birthday. So, I was really only making contributions for ~ 17 years. This math indicates that I contributed for about 17.7 years at $150 per month: $31,860 / 150 / 12 = 17.7.
Also, we didn't start with $100 initially, but that investment calculator doesn't let me start at 0 - it requires a $100 minimum. So, it's a little off from reality, but close enough for my purposes of calculating a rough ROR.
Using your corrected "no grants" contribution + income - fees/insurance total of $46,415 in the investment calculator... Unfortunately I cannot put 17.7 for the years in that calculator. If I use 17 years, I get a 3.8% ROR. If I put 17 years, I get a 4.58% ROR. Splitting the difference, I guess I'm at around a 4% ROR. I also have to fudge the final investment value because it's hard to exactly hit $46,415.
Thank you so much for double-checking things! This is incredibly helpful, hopefully for others as well as myself.
7:27 am
November 5, 2020
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RetirEd said
trhaynes: (Message 55) Another oopsie - that $277 yearly can't be considered spread out over all the years of the RESP because you have to pay it all up front, where the future value of the cash is highest AND you don't get to earn interest elsewhere on the monies you WOULD have not had to disburse until the appropriate year.That formula with the eighteenth root is a monster, even to a math degree and computer geek like myself! Seriously, the only safe way to avoid all time-value errors is with a spreadsheet making calculations for each period. Yes, one CAN calculate formulae for such things, but they still don't let you allow for changes to the way things work (or don't) as time goes on. 18 years is a long time, and look at how many tax and investment rules have changed!
RetirEd
Thank you for pointing this out! I think KFF does somehow amortize the fee, or splits them across multiple years, because my statement says I still will need to pay them like $1K in fees according to the agreement. I will, naturally, be contesting that rather vigorously with them, but it does indicate that not all of the fees were paid up front.
You are right, 18 years is a long time. I'm kind of surprised that KFF didn't bilk me even more, given how naive and trusting with them I was almost 20 years ago. Where is my time machine, so I can go back in time and slap some sense into myself??? 🙂
7:31 am
November 5, 2020
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savemoresaveoften said
trhaynes said
That's a great point. I ran the numbers again, this time entirely excluding the grants, just for simplicity, and assumed that their take was not from the grants or grant income.
My contributions were $32K
Income on my contributions was $19K
So my contributions + income TOTAL = $51K
They skimmed $5600 (or 11% of my TOTAL grrr)
Investment calculator says this is a 5.5 rate of return (excluding grants and grant income) given my monthly contributions of $150.Have I missed anything else?
I would also just assume the govt grant is being "deposited monthly" to calculate actual return. Reason being the govt grant is also being invested and earn you a return as well. So instead of using $150 per month, use $150+$28 as ur monthly contribution to calculate the actual return they are able to "generate" for your money (the grant is ur money too)
Interesting point! Adding that in, gets me between 5% and 4.2% ROR, depending on whether I use 17 or 18 years of growth. Thank you for the idea!
7:58 am
September 11, 2013
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So, and considering you had to spend zero time managing this money for about 17 years, is between 4 - 5% still a scam?
8:19 am
November 5, 2020
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Bill said
So, and considering you had to spend zero time managing this money for about 17 years, is between 4 - 5% still a scam?
A very worthwhile question! I mean, obviously a more involved investor that is willing to take more risks with RESP money, could almost certainly generate a higher return. But I don't really know that this is scam territory, unless I'm missing something.
10:25 am
April 6, 2013
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That's because you are looking at the enhanced returns for a group RESP plan subscriber who made it through to the end. Such subscribers do okay, thanks to receiving the investment income of others who did not make it.
According to a study done for HRDC, the attrition rate is about 3.9% per year. Each year, about 3.9% of the plan subscribers at the beginning of the year are no longer there by the end of the year.
You are one of the about (1 - 0.039)18 = 0.4887 = 48.87% of those who joined 18 years ago who are still in the plan. As such, you received a significant boost to your investment gains, thanks to those former subscribers. I suspect 40%+ of your investment gains are from those former subscribers.
The experience of those dropped out subscribers is not as positive. Many of them lost significant amount of their RESP contributions and their grants as a result.
I think it is a scam. The plans need lots of dropouts to achieve that enhanced 4% to 5% return. That would not otherwise be achieved by investing in bonds.
How does one get lots of dropouts? By bamboozling subscribers into monthly contributions that they likely cannot sustain for 18 years. Otherwise, everyone will make it to the end and end up with something like 2% to 2.5% per annum.
12:36 pm
September 11, 2013
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That's interesting about the dropouts, I guess that's one way to look at it, though maybe then credit cards are a scam too - those who pay off their balances every month get convenience and interest-free credit for a few weeks or so every month paid for thanks to those who pay the high interest rates or otherwise get into financial hell due to being bamboozled to excessively use credit cards.
For those who stay and get their RESP payouts, maybe not a scam as my return is my return, don't really care the reasons it happened.
1:32 pm
March 30, 2017
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Bill said
So, and considering you had to spend zero time managing this money for about 17 years, is between 4 - 5% still a scam?
If I read the thread correctly, $5600 fee already out the door, with another $1k fee on top that is in the contract. So $6600 fee total over 18 years. My understanding is the fee $6600 will be charged regardless of how the investment actually perform, so YES it is still a scam from that perspective.
1:44 pm
January 3, 2013
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Bill said
So, and considering you had to spend zero time managing this money for about 17 years, is between 4 - 5% still a scam?
Market performed very well and yes it is still a scam as how they charge people is ridiculous. Our friend here contributed $31,860 and had to pay $4385 in fees. He also just mentioned he still owes them $1000 in fees. Adding this up, he pays $5385 in fees. $5385 % $31860 = 0.169 = 16.9% over 17 years which is about 1% every year on the total contribution amount of $31860.
Considering his initial contribution was never $31860, their fees are higher than any Mutual Fund fee in the market so YES it is a LEGAL SCAM and consumers need more rules to be protected. Yes law is there to protect both smart and idiots (like me when I put my money there).
BTW, I moved my money to QuestWealth and WealthSimple. On my QuestWealth I am up 4.3% and on WealthSimple I am up 3.8% in just couple months and hey I am not doing anything other than set up the automatic daily (YES Daily) contributions. The rest is done by Robots.
I think if I check tomorrow (when it reflects today's market gain), the 4.3% and 3.8% will be much higher!
1:47 pm
January 3, 2013
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Norman1 said
That's because you are looking at the enhanced returns for a group RESP plan subscriber who made it through to the end. Such subscribers do okay, thanks to receiving the investment income of others who did not make it.
That was cancelled earlier this year which made me so angry causing the whole cancellation of my account drama.
1:55 pm
January 3, 2013
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Bill said
That's interesting about the dropouts, I guess that's one way to look at it, though maybe then credit cards are a scam too - those who pay off their balances every month get convenience and interest-free credit for a few weeks or so every month paid for thanks to those who pay the high interest rates or otherwise get into financial hell due to being bamboozled to excessively use credit cards.For those who stay and get their RESP payouts, maybe not a scam as my return is my return, don't really care the reasons it happened.
Yes Bill. Charging stupid 19.99% interest on a balance is a Legal Scam too which is what causing Canadians to be so high on their debts regardless of being one of the highest paid nations on earth. I personally never paid any interest (I even buy my cars in cash) but those who keep using their credit and getting deeper and deeper in debt should be protected from their own stupidity. We all have that family member who uses Credits to buy furniture they don't need or to go to a fancy vacation or to do a magnificent wedding to make others happy (or jealous). So yes, there should be rules / education / restrictions to protect people.
And I am one of those enjoying all the perks of Credit Cards (Travel insurance, Aeroplan Points, Rental Car Insurance, Roadside Assistance, etc) without paying a cent! Doesn't stop me to feel bad about those who don't have self-control!
3:07 pm
September 11, 2013
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Save2Retire@55, I guess we'll have to disagree, IMO it's not an adult's responsibility to protect another adult from his own stupidity.
4:29 pm
January 3, 2013
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Bill said
Save2Retire@55, I guess we'll have to disagree, IMO it's not an adult's responsibility to protect another adult from his own stupidity.
It is ok to disagree but your reasoning does not always apply specially for a country which gets thousands of newcomers yearly. Even without newcomers there is no formal economy education (sadly) in schools and many parents fail to teach their kids anything useful. So I don't know why you see protecting an adult by another adult as a non-sense?
Basically what you are saying is, it is OK to allow all those CRA scammers to call and scam our seniors and we shouldn't worry about it? Or those Canada Border / Immigration scammers threatening a newcomer or a student to drain thousands of dollars from them? And thousands of other scams.
Or are you saying all the supervised injection sites should be shut down?
Or maybe you mean Canada Suicide Prevention Service is an unnecessary and a waste of tax payers service?
And I can name tens and tens of other services that is there run by an adult to protect another adult from their own stupidity.
PS. I am glad when now searching for Knowledge First Financial (KFF) on Google this thread comes as a 3rd or 4th result. Let's keep it going.
5:17 pm
September 11, 2013
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Save2Retire@55, as I said, we'll have to disagree, I'm absolutely fine with shutting down some of those things you list as being indispensable, plus lots more, but this is not the place for that discussion.
5:51 pm
April 6, 2013
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Bill said
That's interesting about the dropouts, I guess that's one way to look at it, though maybe then credit cards are a scam too - …
Credit cards would be a scam too if they were marketed the same way.
Bury that 19.99% interest rate in the middle of a 50-page prospectus so that it isn't so obvious.
Should the applicant ask what happens if she spends the maximum $5,000 limit on the card and can't pay it off when the statement arrives next month, assure her that she can pay as little as 5% of it and pay the rest of the $5,000 later. Just leave out the part about the 19.99% interest and how many years it will take her to pay it off that way. Such stinky details will just alarm her and negatively impact the take up for the card.
What happens if I can't keep up the $150/month subscription to the group RESP? No problem. The arrangement can be cancelled anytime. I'll get back the money that's in the account so far. 
Leave out the subtle detail that "money that's in the account so far" isn't the same as all the $150/month payments to date. 
That's because of another detail: 100% of each $150/month will be going to fees until 50% of the total sales fees is paid. Then, 50% of each $150/month will be going to fees until the remaining 50% of the total sales fees is paid.
Please write your comments in the forum.