## Sunday, February 19, 2012

### Vitamin Account (6 yrs equity linked structured deposit)

My friend invested \$40,000 in the Vitamin account issued by a local bank in October 2005. He received a payout of 4% at the end of 1 year but there was no payout for the next five years. On maturity, he received back only his principal. The total payout was 4% for 6 years or only 0.7% per year.

According to this structured product, the payout in subsequent years is calculated on the following formula:
Potential payout rate = the average of the annual returns of all 18 shares for each potential payout date where the annual return in relation to each share for each of the potential payout dates is (a) 4%, if that share is one of the 15 best performing shares or (b) individual stock return
I am an actuary, and I do not understand the logic of this type of formula. I can figure out the calculation but NOT THE LOGIC. It seemed that the creator of this product was allowed to write the formula in any way that he wanted - without regard to logic or fairness. This is much worse than gambling in a casino. At least, in the casino, the gambler is able to calculate the odds and the spread.

In this type of structured product, which was approved for sale by the Monetary Authority of Singapore, it is almost impossible to calculate the odds. The empirical evidence in the past years has shown that the financial institutions had made billions of dollars from these types of products, and the investors had got a very poor deal. No wonder, the financial institutions around the world have been cursed by the ordinary people.

If he had invested the money in the Straits Times Index through a ETF, he would have obtained an appreciation of 17% for the period, plus a dividend payout of about 15% for the 6 years, giving a total payout of 32%  (compared to 4% from the Vitaman account). What vitamin!

#### 9 comments:

Anonymous said...

The FIs have no conscience at all. They use the greedy insurance salesmen or RMs to con their customers.
What do think of this product? Last time this single premium product called Growth was paying 3.1% for 5 years and 4.1% for 10 years. Now the 5 years is paying only 2% and 10 years paying 2.8%, do you think it should be withdrawn instead of letting their agents to con their customers? Wonder what would the agents tell their customers about this products. Will they tell the truth? If they do tell the truth they might as well don't sell because the customers won't invest if they know the low returns.But it looks like the salesmen would not give up.They work on numbers and I am sure they could con a few customers who are too trusting or blur to know the rotten return.
This is the kind of situation in the financial industry where you can say "there are some who can be conned", so con them.Use the army of greedy salesmen to do the job, they know better the thier clients.
Sad, right?

Anonymous said...

i lost a fair bit of money from my poems GEMS accounts too.

i now understand that the fund managers and my goals are different.

they make more money if they keep actively trading the stocks rather than hold and wait for appreciation.

a fool and his money are quickly parted

Xianlong said...

Financial services industry survive & thrive by preying on people who are ignorant with growing their \$.

Schools doesn't teach people about \$\$ else the supply of cheap 'slaves' would be cut off. Supply of hardworking 'sheep' would also be cut off.

Only defense is to self-educate on financial matters lest one get preyed upon.

Anonymous said...

Anon February 19, 2012 10:04 PM,

you know ntuc agents are still using their old past records to mislead people that their Growth can still return higher return.
Actually , MAS, must go to their roadshow and catch them red handed.

Anonymous said...

They were supposed to grow your fund and advertised their products as such. On maturity, you only find out that is not the case. MAS should do something about this. They should force banks to cough out some of the profits made and give them to their customers.

Anonymous said...

Grow your fund? they grow their own commission so that they can qualify for south korea incentive trip with your money.

yujuan said...

If my memory dun fail me, this Vitamin Account is by DBS.
Felt like a fool too when my six year Honey Investment with DBS only gave me returns for the first year, then absolutely nothing for the subsequent years till maturity.
Then came the bombshell of the High 5 Notes, nevertheless it was my experience with the Honey Investment that made me ignore my RM to invest on these deceptive Notes. Maybe should congratulate myself at least got my Capital back for the Honey account, and my wise decision to ignore that greedy RM who tried to con me to invest in the High 5 notes.
Will never trust DBS again.

A Singaporean said...

For those interested:
http://www.dbs.com/sg/personal/investments/notices/halfyearlyupdate_sd/default.aspx

A number of these structured deposits have a similar structure. Notice that most (if not all) of them have absolutely zero risk but also near zero upside potential.

Anonymous said...

DBS again ? They should take a serious look into how they design a product and their RMs operate.