Search for RESP in google and you get a lot of hits, 61 100 000 to be exact. According to Wiki an RESP is “an investment vehicle used by parents to save for their children's post-secondary education in Canada. The principal advantages of RESPs are the access to the Canada Education Savings Grant (CESG) and a source of tax-deferred income.”
The RESP is a great program to help fund post secondary education. The government provides grants to subsidize the cost of educational programs after high school. This grant is based on your family income, the lower this number, the higher the grant, however, everyone gets a base amount of 20% on the first 500$. Check it out clickhere. There have been many changes to the plan over the years, such as the type or programs that are eligible, the types and number of providers has increased. I have been offering RESPs since 2006. Here are my TOP 10 questions you should ask the person in front of you that would like to put this regime in place for you.
1. What are the fees? This is a very important question that is often over looked. There is a wide range of fee structures and costs. I have seen some fees that are paid for the first few years.
2. How much do you get paid? This is a transparency question. The remuneration is directly associated with the amount of money either being invested or the balance in the RESP.
3. How much do I really need? Question the representative on this topic. There are many ways to calculate this in terms of the needs, however, it must work in your budget. This is not a “set it and forget it” regime. It should be reviewed at least every 3 years.
4. What happens if I can no longer make my contributions? I believe you would like to avoid being locked in and having to pay a fee if you stop your contribution, right? Make sure to ask this question, some providers have penalties in place if you stop contributing.
5. What happens if you are no longer in the business? This may seem like a strange question to ask, however, if you are building a relationship with a professional, you want to know what happens if they win the lottery and decide to retire early? Who will be on your side after this? What are the provisions in place?
6. What happens if you are not happy and want to transfer somewhere else? This is another transparency question. You want to know what you are getting yourself into and how much it will cost if you need or want to get out. Many things happen in life, and this is often neglected, and can cause much grief in the future. I have seen people pay multiple hundreds and even thousands of dollars of penalties for leaving.
7. How do I know my personal rate of return? I have seen some of these statements in my day, and I have often questioned how much did my client and their children actually make. There are scenarios proposed such as if you make 5, or 6 percent you will have X in the plan. That is fine, however, it is important to know exactly how much I personally made to evaluate the quality and opportunity cost of this and any investment for that matter.
8. When can I take the money out? Simple yet effective, you need to know this. Although the plan is standard, sometime due to the fee structure, it may take a different or longer time prior to you being able to make the withdrawal. My opinion, take a much as you can as soon as you can, especially prior to your child starting to work.
9. What investment options are available to me? I would like to know where the money is being invested and by whom. What is their track record, are they a solid company? How aggressive or conservative are your investment choices, and how do they match to your investor profile?
10. What time of plan is this? There are several types of plans from group, to individual to family. There are many different types each offering their own distinct advantages and disadvantages, ask the person about this as well.
This TOP 10 is designed to provide tools for you to ask your people and those who would like to do business with you. I recommend taking this list and shopping around. Be wary of the first person who calls you 3 days after you get out of the hospital. Ask them how they even knew you had a child. If you are satisfied with this answer prior to meeting them ask 1, 2, and 4. Gauge their response, if you are satisfied, you can take the meeting and proceed to asking the rest of the questions on this list. When they come to your home or invite you to a coffee shop or their office, take that into consideration as well, what type of professional are you looking for? Advise the person right away that you will not sign anything today and that you are shopping around. After the meeting, make an appointment with an independent financial professional and your bank. This way you will have learned something from each meeting. We retain around 20% of everything we are told, you will have a better grasp of the material. Then make your decision.
You may be thinking to yourself, “this is a lot of work for $25, $50, $75, $100 a month,” and it is. Remember this professional may be in your life until your children reach pre-adulthood, that is a long time. You want to ensure your money goes to the right people. The goal is to empower you and avoid the “oops” that often happens due to a missed or omitted detail. Knowledge is power, yield it in your favor. Financial Freedom isn’t a Myth!