Distributors: DBS, POSB
Name of Product: "DBS High Notes 2"
Ad Description: Picture of a lady looking lovingly at a string of pearls
Type of Product: Structured Product
The Bold Claim: "A potential return of 21.5 per cent over 5 years."
The Facts: (i) Return for years 1 to 5 are 3.5 % + 3.5 % + 3.5 % + 5 % + 5 % = 21.5 %. These are the maximum yearly returns.
(ii) The ad does not tell the minimum returns and, as with all structured products, the prospectus does not give enough information to know which is more likely -- the min or max return. Bank sales staff often imply that the maximum return is more likely. In fact, there is no way to know this.
(iii) As with all structured products, the maximum return is limited. The cap is 14 per cent over 3.5 years, which comes to 4 per cent per year. The ad and sales staff give the impression that you are fortunate if you receive this early payout. In fact, the opposite is true. You will receive an early payout only if the fund does exceptionally well. If that happens, the issuer will buy you out, thereby limiting your gain. The remainder of the extraordinary gain (often the bulk of it) goes to the issuer.
(iv) As with all structured products, the return is linked to products and events which are nearly impossible to forecast. In this case, "The performance of DBS High Notes 2 is linked to a basket of 8 international and regional banks, each with a minimum rating of A- by Standard and Poors".