Education Plan Review: Canadian Scholarship Trust (CST)

Canadian Scholarship Trust (CST) is the first organization to offer education plans to assist Canadian parents with saving for their child's post-secondary education. The not-for-profit Foundation was founded in 1960 by a small group of Canadians who steadfastly believed that education should be accessible to everyone, not just the wealthy and entitled. Today, the CST RESP is ranked as the number one Registered Education Savings Plan in the country.

Vital Information (as of 2017):

• Founded: 1960

• Total Education Payments to students: $4.4 billion

• Total RESPs opened by CST for Canadian children: 537,350

• RESP Assets Under Management (2017): $4.7 billion

• Net Rate-of-Return (2017): 7.0%

• RESP Value Survey Rank: 1st

Mission Statement: To advocate, develop, deliver and support solutions that will enable every Canadian resident to have sufficient financial resources to pursue post-secondary education.

Safety and Security

The CST RESP offers principal protection which means that the client's RESP savings are invested in stable and secure fixed-income government and financial institution bonds. The principal is always returned to the client, regardless if their child pursues a post-secondary education.

Client RESP savings with CST are managed, in tandem, by:

BMO Asset Management

CIBC Asset Management

TD Asset Management

• plus 4 other asset management firms

Families saving with the CST RESP have their investment professionally managed by three of Canada's Big 5 Banks' Asset Management divisions. A client cannot go to their local bank and gain access to this education savings plan - it is distributed exclusively through CST. All funds are held in trust with RBC.

Safety & Security Rating: 5/5

Rate-of-Return

The CST RESP offers a very reasonable return on their client's safe, secure RESP savings. Again, this is done through the Asset Management divisions of BMO, CIBC, and TD. The 2017 net rate-of-return was 7.0% (source). As a comparison, a typical 5-year GIC paid only 1.2%, with the CST RESP offering a comparable level of safety and security with a substantially enhanced rate-of-return (7.0%).

Rate-of-Return Rating: 4.5/5

Fee Structure

One of the features that the CST RESP offers is a low fee structure (relative to a typical bank RESP like BMO Target Education Portfolios). An advantage that the CST RESP offers clients is to pay most of their fees up-front, which results in significantly lower costs when compared to paying their fees over time. Most institutions charge fees on an annual basis, which results in an increasing fees every year. For example, a typical Canadian bank Balanced Fund charges an annual fee of 2.25% (this is called the Management Expense Ratio, which is simply a different name for an 'annual fee'). Each time a client makes a deposit (or experiences growth) to their RESP account, their annual fee increases. This model will significantly erode the client's RESP savings over an 18-year period, which is the reason that CST does not embrace a high MER fee structure. To develop a better understanding of the hidden fees charged by banks, please review this article, as fees will have a significant impact on your RESP.

The annual fee on the CST RESP program is a very low 0.63%.

Finally, the CST RESP offers a bonus Return-of-Fee feature that allows their clients to receive a cash payout equivalent to 50% of their up-front fee when their child's RESP matures. CST is the only institution in the country that has a dedicated account to ensure the Return-of-Fee bonus is available for their clients. The Return-of-Fee account balance is $5 million (in 2017), to ensure that clients may exercise their Return-of-Fee feature.

Fee Structure Rating: 4/5

A quick comparison of BMO's RESP solution with the CST RESP.

Flexibility

The CST RESP is more rigid than a typical bank RESP. This is to be expected when one is committing to a mid-to-long term savings program that offers a high level of safety and security coupled with solid annual returns. Flexibility inside of the RESP is rarely a priority for the vast majority of those saving for their child's post-secondary education. The reason why 'felixiblity' is less important than investment security and rate-of-return is:

• the registered account has a specific purpose (paying for a child's education) and a fixed time horizon (savings window)

• the CST RESP offers tremendous value, with over 92% of all families enrolled with CST remaining with the Plan for the entire duration of their RESP savings window

• the lack of flexibility is with respect to the investment choices inside of the RESP, as the portfolio managers primarily focus on secure investments that offer above-average returns, providing peace of mind for their clients

For those that value selecting their own asset classes over safety and rate-of-return, there are better options available. For clients who prefer to have the professional money managers of BMO, CIBC, and TD manage their education savings, the CST RESP represents a good fit.

Flexibility Rating: 3.5/5

Payments (from the Plan)

CST has funded more Educational Assistance Payments than any other financial institution in Canada. In 2017, CST distributed $151.5 million (made up of education grants, bonds, interest, and the Return-of-Fee feature) in payments to 58,000 students. In total, CST has distributed over $4.4 billion in Education Assistance Payments to students participating in the Plan.

Clients participating in the CST RESP are also eligible to receive a Plan Bonus. This is a non-discretionary payment made to CST's clients with the amount varying each year.

Payments Rating: 4.5/5

Client Support

CST's support systems for their clients are second to none in the field of RESPs. However, there is still some room for improvement. While the staff is quick to respond to enquiries and very well trained, clients living on the west coast may be frustrated by the hours they can connect with Client Services, as they are housed in the corporate home office in Toronto and maintain Eastern Standard Time hours.

Client Support Rating: 4/5

Overall Value

The CST Plan is the highest rated RESP offered across all institutions. For those that place a premium on safety, security, and reasonable returns over asset class flexibility, the CST RESP is likely a good fit for your objectives. Having an RESP that is jointly managed by BMO, CIBC, and TD, with a low fee structure and stellar Client Services, will likely serve you very well.

Overall Value Rating: 4.5/5

EducationPlans.org does not endorse any financial institutions. Please speak with your RESP Specialist for professional advice when making any decisions about your Registered Education Savings Plan.

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