RESP with "Knowledge First Financial" | Page 2 | General financial discussion | Discussion forum

I think you will need to read the prospectus in some detail and with a critical eye, so that you know what exactly you are investing in. That is really the key.
Your correspondent is not fluent in English. For me, this would be a barrier to purchase. Everything depends on absolute clarity of language, as it's all about legal documents. But you may be more comfortable with this situation than I am.
The regulatory info is helpful but I would still want to know how your investments are protected if the company you are dealing with disappeared. Are they covered by the Investment Dealers Association?

In any event, now that we know they are regulated by the Securities Commission of whatever province, we know that this is primary a stock market investment of some kind. You really need to look vey carefully at that prospectus. Pay close attention to what is promised versus what is anticipated. It all boils down to risk versus reward.

If I may make a stab at simplifying, it sounds like you are basically looking at 4 alternatives.
1. "The plan". They take your money, invest it, charge fairly hefty fees, results are not guaranteed but they have some back-up funds from drop-outs which would likely support better results. In exchange for higher fees, it is somewhat safer than options 3 and 4, and has an insurance aspect as well. Designed to make parents feel more comfortable, but does cost more. (It strikes me that this bears some resemblance o annuities inasmuch as payouts from annuities are supported by the sure knowledge that some retirees will die sooner than others, leaving their assets behind in the fund. Knowledge First probably has actuaries who have figured out how many people are likely to drop out, and thus can predict the size of the slush fund from which they will draw if investments don't work out as well.) You really need to look carefully at the prospectus.
2. GICs from conventional financial institutions. Doesn't pay as well but is safe. This is the only option with guaranteed results.
3. Do-it-yourself through Qtrade or other. Involves research, no guarantees, modest fees. You might be ahead in the long run, or not. Depends on how much work you are willing and able to put into it.
4. Managed funds through Knowledge First or similar. No guarantees but less work for you. Porbably more modest fees (or ought to be). Would be very important to read the prospectus in detail. this appears to be the Knowledge First plan without the slush fund from dropouts.

All of these should qualify for the government subsidy.

I think your first decision needs to be whether you are willing to take guaranteed results, which could very well be lower than results from the other methods (but maybe not). If you aren't, then we look at the other 3.

Have I got that right?

I can't help but wonder, doesn't this company have any direct competitors? Or is it like the reverse mortgage system for seniors, which seems to have only one provider, and thus exhorbitant fees.

Wow, Norman! Excellent research.
Based on this and many of Norman's previous posts, I would go with this opinion.
The pitch may be clever, but you can't really beat prevailing rates, which are, alas, low.
I would go for option 2 above.

Based on Norman's clues, I found a slew of documents concerning regulatory issues with Knowledge First. Go here and put "Knowledge first" in the search box. http://www.osc.gov.on.ca/en/home.htm
Many of these are more recent than the Gordon Pape article appears to be.

I found the 2008 study that done by Informetrica for HRDC: Gov't of Canada Publications: Review of Registered Education Savings Plan Industry Practices (August 2008)

Those scholarship trust RESP plans are quite heavy on the fees. When Yas said his 31.7 units would cost $100/unit, my first impression that was the total cost for the units and not just the enrollment fees for the units!

Those guys certainly know how to pay themselves first!

1. 100% of each monthly contribution will be put toward the enrollment fee until 50% is paid.
2. Then, 50% of each monthly contributions will be put toward the remaining part of the enrollment fee until it is fully paid.

Yas gave an example of $2,500 year = $208.34 per month for 15 years. That would come with an enrollment fee of $3,170 for his commitment of 15 years x $2,500 = $37,500.

After the first eight monthly contributions, one would have nothing invested; all $1,666.72 of the contributions would be put against the enrollment fee. After another four contributions, for a total of $2,500 in contributions in the first year, one would only have $416.68 or 16.7% of the $2,500 in contributions at the end of the first year invested and earning any interest. But, if one combines that with the 8 months of $0 invested, then it's like one only had 3.6% of the monthly contributions invested for the whole twelve months.

At the end of year 2, one would have made $5,000 in contributions and have $1,830.16 (36.6%) of it invested. Average amount invested works out to be around 15% of the contributions over the entire twenty four months.

In additon to the hefty enrollment fee, the HRDC study says there are

1. depository fees (flat $10 per year for processing contributions),
2. custodial fees (0.015% per year),
3. administration fees (0.50% per year), and
4. investment management fees (0.08% to 0.21% per year).

For me, I'll take a pass on the scholarship trust plans.

Item on CTV today concerning Knowledge First.
http://toronto.ctvnews.ca/vide.....=1.2042123

There was, at least back in 2008, tremendous incentive for the sales reps to do whatever it takes to sign up parents with a newborn, like the mother Lauren Thompson in the CTV video.

From page 18 of that 2008 report done by Informetrica for HRDC:

Enrolment fees are charged in dollars per Unit. This means that fees are higher relative to contributions the longer the term to maturity. In a plan opened when the beneficiary is still an infant, the enrolment fee is from 1.4 to 1.8 times the amount of contributions for a year. The older the beneficiary, the lower the enrolment fee is in relation to contributions. If the beneficiary is 12 or 13 years old when the plan is opened, the enrolment fee is between 10% and 20% of annual contributions.
....
To the sales representative, the relatively high enrolment fees for plans with a long contribution period are an incentive to seek out families with a very young child. An early start with savings is a positive thing, provided the subscriber is able to maintain contributions over the term of the RESP. However, there is a risk that sales representatives, in order to generate a higher amount of fees out of which they get paid, may attempt to make people commit to contributions they cannot maintain in the long run.

Norman1 said

However, the banks and credit unions regard the RESP as expensive to administer because of administrative requirements associated with both the RESP itself and the grant and bond. One interview respondent indicated the cost of administering RESPs is three times that for a RRSP.

I don't understand why RESP costs 3 times as for an RRSP. From my experience, I opened a self-directed RRSP with qtrade. Every contribution is an electronic command from qtrade website. Each year, it only needs to send a report to the government. As for RESP, the collection for bond, grant are automatic processes too.

Like I first said I know nothing about RESP. And you guys are much more knowledgeable about finances than I. I do realize the cost of a cheque, teller, and posting to your account was more costly than today at an ATM or Online at a fraction of the cost.

BUT

Just wondering if there maybe more maintenance to an RESP similar to a RRSP GIC vs a RRIF GIC. The RRIF needs an annual intervention to withdraw the minimum. And the only thing I see is that some institutions want to have a much higher minimum GIC deposit for a RRIF which I don't have a problem with.

Possible?

Don't get me wrong....I am not a pro fee guy.

ps. From what I see here I would research the value of an RESP and if it is a value...consider doing it myself.