Saving for college is a monumental task. With tuition prices rising and forecasted to keep increasing, parents face an overwhelming challenge.
Many are turning to registered education savings plans (RESP) to help offset some of those costs. But what happens when you try to withdraw your money and it isn’t there?
Some investors within Heritage RESP plan witnessed this shock firsthand. Now, many wonder if the Heritage Group is a scam.
The Heritage Group RESP wasn’t necessarily a scam, but there were scores of customers (almost 500) filing complaints from 2014 through 2018.
With a complicated sales fee structure and confusing rules, many RESP customers invested with the company without fully understanding what they were getting into.
However, various compliance reviews throughout the years found deficiencies within Heritage.
After several provincial securities commissions reviewed the company, Heritage paid out over $50,000 in penalties and was ordered to hire independent outside consultants to monitor their compliance with security regulations.
In 2018, Knowledge First Financial, another group RESP, purchased Heritage Education.
Group RESPs differ from individual plans offered by banks and credit unions in that they pool all contributions from individual investors according to the beneficiary’s birth year.
At maturity, a beneficiary will receive their contributions plus any government grants or learning bonds. However, the amount received depends on how much was contributed and the number of plan dropouts before maturity.
The biggest disadvantage of a group RESP is the sales fee structure. The companies charge up-front fees that are deducted from the contributions, limiting the amount invested. Banks and Credit Unions do not charge upfront sales fees on their RESPs.
If the investor doesn’t make regular contributions or leaves before the plan matures, they can potentially lose all their earnings and grants.
Fees vary depending on which company you choose. However, according to its prospectus, Heritage charges $100 per unit.
The sales fee gets deducted immediately from your contributions, meaning all of your money goes towards the sales charge until half of it is paid.
After that, your contributions get split 50/50. Half goes towards paying off the sales fee, and the other half gets invested.
They aren’t the only fees associated with the account, either. In addition to the sales fees, there are management fees, maintenance fees, transaction fees, and even withdrawal fees.
The bottom line is that if you consider investing within a group RESP plan, you need to do some serious homework and read the fine print.
The point of the group RESP is to keep investors making contributions up until the time the beneficiary is old enough to enroll in an institution of higher learning. At that time, the plan matures, and the beneficiary will receive all the benefits of the group plan.
However, some investors, either because they’re unaware or unable, stop making contributions to the plan. If that happens, any money you get back will be less because of the fees.
In addition, it’s possible you won’t receive your earnings either as they will go back into the group pool.
The 500 complaints from customers initiated from them losing all or part of their contributions to the Heritage RESP. An investigation by the Toronto Star revealed that many customers were unaware of the complex rules.
Those who lost their savings and filed complaints did not know stopping contributions would cause them to default. Others said the same about closing their accounts.
Customers accuse Heritage of not disclosing the risks and hiring aggressive sales reps who did not divulge the fees and penalties associated with the account.
The reps earn their commission based on how much a customer contributes during the initial sign-up.
The higher the contribution, the more commission they earn. Investors claim this led to sales reps aggressively promoting their products without properly explaining the outcomes to the customer.
According to the Star’s investigation, a 2012 review by the Ontario Securities Commission found that Heritage sales reps were trained to employ high pressure and aggressive tactics to make a sale.
In addition, instead of trying to contact the owners of any unclaimed contributions, the company transferred the payments into the group pool.
Other reviews found that Heritage failed to provide supervision over their employees to ensure they remain in compliance.
They also found that reps tried to target certain people, namely low to middle class and immigrant families.
As a result of these findings, Heritage had to pay a $50,000 fine and hire an independent consultant to perform annual reviews.
While the Heritage group RESP isn’t a scam, it’s full of complex rules that are anything but straightforward.
Many people have lost large sums of money simply because they didn’t understand all the ins and outs of the program before they signed up.
If you’re looking for ways to earn cash, whether to put someone through college or to fund a dream vacation, check out these tips to save more money.