OSC sets conditions on six education-savings-plan dealers
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USC Education Savings Plans Inc. and Global Educational Marketing Corp. have not been barred from doing new business. They cannot hire new sales staff or open new branches under conditions placed on their registration by the Ontario Securities Commission. USC is a wholly owned subsidiary of the not-for-profit International Scholarship Foundation. Incomplete information was published yesterday.

Securities regulators have known for at least two years that Canada's fast-growing registered education savings plan sector is riddled with problems.

This week, the Ontario Securities Commission took the rare step of imposing conditions on six scholarship-plan dealers, including barring two of them from expanding their operations. Five of the dealers must submit monthly progress reports to the commission beginning Sept. 15.

The commission went public with its findings following earlier attempts to get the industry to clean up its act. Compliance reports done every year since 2002 by regulators in Ontario and Alberta have outlined numerous problems involving the dealers' business, sales and disclosure practices.

"In many cases, we identified issues, which had been previously brought to the attention of the dealers by other securities regulators," the OSC says in a report released this week.

The OSC sent a report to the dealers in August, 2003, outlining the problems. During follow-up compliance reviews in March and April this year, the OSC said all the dealers had made some improvements but numerous problems remained.

"Due to the repeated non-compliance, more stringent measures are being taken and varying terms and conditions have been imposed on the registration of these dealers," the OSC report says.

Investor advocate Ken Kivenko wonders why the regulator waited so long before cracking down on the burgeoning industry. After all, the OSC published a brochure in October, 2002, to help investors understand the risks associated with registered education savings plans (RESPs), including the "often-misunderstood" pooled group scholarship trust plans.

"When reports are written nothing happens anyway, so what kind of investor protection do we have?" Mr. Kivenko asked.

Five companies singled out by the OSC are the largest players in the RESP industry. However, unlike a handful of mutual fund dealers that also sell these investments, the five companies sell the pooled group plans that invest mainly in government bonds.

The three largest players -- Allianz Education Funds Inc., CST Consultants Inc. and USC Education Savings Plans Inc. -- account for nearly $5-billion of the $12.8-billion in assets managed by the industry.

USC and Global Educational Marketing Corp. have been barred from hiring new staff and opening new branch offices. A sixth company in the start-up phase, H&R Block Canada Financial Services Inc., has been barred from having employees in sister company H&R Block Canada Inc. sell scholarship plans.

Peter Lewis, vice-president of administration at CST Consultants, said the industry has addressed many of the concerns raised by the regulators.

"I think we have basically made some tremendous strides forward and I guess the OSC felt that we should have turned the ship on a dime so to speak and are asking for a little bit faster response."

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