Group resps: The intersection of government support for education savings and securities regulation †

Abstract

Tax incentives encourage Canadian families to save for their children’s post-secondary education. In recent years, the federal government has created and enhanced incentives aimed specifically at low- to middle-income families. To access these incentives, families must open a ‘registered education savings plan’ (RESP). Approximately one-quarter of RESPs are invested in group plan RESPs. Group plan providers are regulated by securities laws. Group RESPs have a unique and complicated structure, which generates a high number of consumer complaints, particularly about the high, upfront fees. Group plan providers also have a long history of non-compliance with securities laws, including selling group plans to investors for whom they are not suitable. The combination of high, upfront fees and the lack of suitability is particularly harmful to low-income investors. A bad experience with a group RESP may lead the investor to avoid education savings altogether, thereby undermining the government’s policy goals in establishing incentives for low-income families and, ultimately, affecting the future path that may be taken by the potential beneficiaries of such savings. This article examines government incentives for education savings, the terms of group plans and their history of non-compliance, and puts forward three possible avenues for reform, including decoupling incentives aimed specifically at low- and middle-income families from having to open a RESP.