FINANCIAL ADVISORS NEED TO play a bigger role in raising awareness among their clients about registered education savings plans (RESPs), says Robert Armstrong, vice president of managed solutions and registered plans strategy with Bank of Montreal (BMO) in Toronto – specifically, what they are, how the government grants work and how best to invest funds within the plan.
“Canadians are not as familiar with RESPs as they are with RRSPs,” Armstrong says. “When people have their first child, saving for the child’s education is often not top of mind. It takes a while for some to learn [about RESPs].”
According to the results of a BMO survey released in September, Canadian parents remain less than well versed with the rules governing RESPs.
Those surveyed were asked to indicate which among the following investments could be held in an RESP: cash, mutual funds, guaranteed investment certificates, stocks, exchange-traded funds (ETFs) and bonds. A whopping 93% of respondents failed to indicate that all six categories of assets were eligible to be held in an RESP.
The survey results regarding RESP adoption rates and basic knowledge are more encouraging: 52%of respondents already had opened an RESP for their children; and 70% of respondents indicated that it was best to open an RESP as soon as possible after the birth of a child.
You can help your clients by reminding them to open an RESP early, contribute regularly and find the right investment mix of growth-oriented investments, such as equities or ETFs, and less risky investments, such as cash or fixed-income products.
“You need to match investment product with need,” Armstrong says. “When you start saving in an RESP, you have a need for growth. And then, over time, your portfolio should become more conservative as the child approaches post-secondary [school] age.”
Armstrong suggests that target-date funds, in which the allocation of the underlying assets is readjusted over time to meet the investment needs of the investor by a certain target date, may be the ideal investment for an RESP. It’s critical, he says, that the portfolio in an RESP become more conservative as the time approaches that the money will be needed.
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