Investor lost funds in RESP account due to inactivity
Mr. B complained when his RESP dealer firm refused to return the funds he contributed to an RESP account. Mr. B had been making payments to a scholarship plan for several years, but due to personal circumstances requested his RESP dealer firm place a temporary stop on his required contributions. The firm agreed to this request and placed the account on “temporary termination". Within 30 days, a notice was sent to the client stating simply that the account could be reactivated at any time within the next three years.
During the next five years, the client and the firm had no contact and no payments were made by Mr. B. When he attempted to transfer his RESP account to another firm, Mr. B was informed that the account “no longer existed" and its funds had been placed into the firm's internal distribution fund; under certain circumstances the firm could add unclaimed or forfeited client funds to the remaining members' pool of funds.
Mr. B complained to the firm that he had not been made aware that his contributions could be forfeited. In response, his firm explained that the prospectus he received stated that any account inactive for more than three years was surrendered and its funds were transferred to the distribution pool. When he stopped the payments, Mr. B had three years to either re-activate contributions or withdraw the money, less any fees already paid. The firm offered no compensation, and Mr. B complained to us.
Complaint upheld
We carefully examined the sections of the prospectus concerning forfeiture of contributions. Mr. B was to have received two notices: the first notice 30 days after the scheduled contribution was missed, and another 60 days after that outlining his options. The client never received any notices after the initial 30-day notice.
If the firm had sent the subsequent notice, Mr. B would have known his options: within three years, he could re-active the account or withdraw the funds, minus fees. He would also have known that failure to do this would result in his contributions being forfeited.
In our view, the penalty after three years was of sufficient severity that the firm should have clearly informed Mr. B of the consequences. Furthermore, the firm did not follow its own obligations as outlined in the prospectus.
We discussed the case with the firm and it agreed to compensate Mr. B $8,700 – an amount equal to what the client would have received had he elected to withdraw the funds soon after the account was put on “temporary termination".
(2010)