FAIR Canada commends the OSC for the temporary orders issued against Global RESP on July 26, 2012, Knowledge First Financial Inc. (“KFFI”) on August 10, 2012 and Heritage Education Funds Inc. (“HEF”) on August 13, 2012. Among other things, the orders require Global RESP, KFFI and HEF to retain independent consultants to examine their policies, practices and procedures relating to: documenting and collecting clients’ know-your-client information (“KYC Information”); ensuring that all trades are suitable for their clients; and preparing and distributing marketing materials. The orders also require Global RESP, HEF and KFFI to retain independent monitors, and not to accept any new clients or accounts from existing clients until these monitors are in place. The monitors will follow up with all new clients within 30 days of investment to confirm: that KYC Information was recorded accurately; that the investment was suitable for the client; and that the client understands the associated fees.
The orders are a result of OSC compliance reviews of Global RESP, HEF and KFFI. The OSC’s actions are further evidence that it is taking its investor protection mandate seriously. The use of an independent monitor is an appropriate mechanism to help ensure that the dealers comply with their suitability and other obligations to clients, most of whom are lower income consumers.
Earlier this year, FAIR Canada called for an overhaul of group scholarship plan rules, stating that we believe such plans to be generally poor savings vehicles with little or no benefits to consumers. Our recommendations should be given serious consideration by the CSA in light of the OSC’s compliance reviews and findings. One of our key recommendations was that, at a minimum, fees should be set at a maximum of 10 per cent or less of the contributions in any one year. Ellen Roseman recently shed light on the significant problem of upfront fees in the following article: Fees eat up 90% of RESP refund after baby’s death.
FAIR Canada also reminds Canadians that unbiased information regarding registered education savings plans is available at www.smartsaver.org.
The order against the three group scholarship plan dealers will remain in effect until hearings take place in November (November 8 for Global RESP, November 22, 2012 for HEF and November 13, 2012 for KFFI), at which time an update on the work completed by the monitor and the consultant will be provided.