the watch of time

In today’s Ottawa Citizen, a page two article describes the travails of an RESP planholder attempting to redeem monies for her son’s post-secondary schooling.  The coverage of such cost, of course, is the raison d’etre for the program.  The financial institution which set up the RESP made an already time-vulnerable process for obtaining monies for the student one of exasperation for her and her son.

It shouldn’t have been this way if the representatives of the institution followed the likely protocol.

Let me note that for many years I was a financial consultant and a CFP (Certified Financial Planner) for a large Canadian non-bank financial institution, until I left the business in late 2013.  Prior to that time I spent three years working for an RESP scholarship plan distributor.  Therefore, I have had a long exposure and expertise dealing with this significant education savings option.

There is no question that the combination of HRSDC (Human Resources & Social Development Canada, the jurisdictional government department) and industry regulations have mandated complicated procedures for opening and redeeming from such plans.  In part this is due to the enhanced attraction of the program since the late 1990s, when the introduction of the Canada Education Savings Grant (CESG), plus increased contribution limits, came into effect. Naturally, this meant a range of procedures which financial institutions offering RESPs have had to follow.  Moreover, these coupled with increasing compliance requirements have meant that form processing has expanded in complexity: when I left, a four-page RESP withdrawal form and a two-page instruction form were required, not to mention the ongoing need for KYC (Know Your Client) information on record; depending on transactions, be they transfers or redemptions, the financial consultant responsible for the account might have to deal with internal trade inquiry, because of some related issue red-flagged, to be followed-up with management.  All this in the context of attempting to provide solid and timely service to clients.

In processing RESP redemptions, the HRSDC compliant withdrawal form required details about the subscriber (planholder), beneficiary and educational program (plus a Proof of Enrolment from the school – often a hassle in its own right), a delineation of what monies were to be education assistance payments (EAPs – the earnings portion of the account) versus what monies were return of contributions (the monies invested), with potentially other payout options (such as accumulated income payments, or AIPs, representing essentially monies left over).  Getting the details of these forms right was almost always a challenge, especially if different categories or types of investment units were in the account. Moreover, the preponderance of withdrawal requests would come during the summer with funds needed in August or September, thus adding administrative processing strains.

One will note that an area not mentioned above was personal information, of the sort the client in the article did not want to provide.  Such detail was not (and presumably still isn’t) required for HRSDC withdrawal form purposes.  Therefore, monies should have been eligible to be paid out without the extensive hassle she experienced.  That said, it’s possible that for corporate compliance purposes some personal information was missing – but this should have been addressed when the account was set-up, not at the redemption stage.  A redemption could be held up if it was a partial redemption involving an account with different kinds of investment units, thus possibly affecting the plan risk profile.  In this case, since it was apparently a cash-based account (thanks for the rate of return!), from my perspective this should not have been a factor.  Then again, I was a CFP.