Unilateral changes to DBS Schroder LiveSure 2025 fund

Dear Mr. Tan,

I have recently received a notice from DBS on behalf of Schroder Investment Management (Singapore) Ltd that they plan to alter the product characteristics of the DBS Schroder LiveSure 2025 fund to the disadvantage of the consumers. The changes contravene the purpose and the way the fund was marketed to us, as ordinary small investors.

We are given 3 choices moving ahead and I feel none of them are reasonable to any sane human. I want to share this news and urge those who are facing similar situation not concede to any of their 3 proposed options, which might not be in your interest.

If you feel this is of worthy mention, please help post this on your blog.

Colin Ho

Background
This fund is marketed in their brochures as “a unique retirement solution that aims to achieve superior long term risk-adjusted returns through an actively-managed multi-asset portfolio of mutual funds.”.

The brochure clearly states these key benefits:
1. Principal protection upon maturity
2. Exposure to a well-balanced portfolio managed by Schroders Multi-Asset Team
3. Profit lock-in mechanism.
This is designed to raise your level of principal protection at maturity. Any gains achieved by the Fund will be locked in each week, ensuring that the fund’s highest NAV will be locked in as target min NAV level for your investment upon maturity in year 2025.
4. Automatic re-balancing mechanism.
The portfolio will automatically become more conservative with lower expected volatility and risk as the target date draws near.

What we understood
From the way DBS and Schroder has marketed it, was that the fund is for retirement purpose with maturity in 2025. The NAV will swing along the way but over the next 20+ years, it’s likely the NAV will go beyond 1.00 and this higher NAV will be locked in and if we hold the fund till maturity in 2025, we’ll enjoy this “locked-in” NAV.

What has happened
Just 8 months after I subscribed to the fund, Schroder, through DBS, sent us a letter saying the fund was monetised stating that: “The last 6 months have seen dramatic falls in asset values caused primarily by the credit crunch. In addition, we have witnessed a fall in long term SGD interest rates from 4.50% to the 2.6% we see today.”....”we reached the point where the assets of the Fund were sufficient only to purchase instruments (safe portfolio) that would be expected to deliver the target protection level on the Maturity Date. We therefore invested the Funds assets into such instruments on Monday 24th November 2008”.

We are now given 3 choices:
1. Stay invested in the Fund. Unit trust investors can choose to stay invested in the Fund which is primarily invested in SGD government bonds. At maturity, investors are expected to receive the NAV of $1.0004, subject to the risks abovementioned in section 7.
2. Switch into another Schroder fund distributed by DBS. Investors can choose to switch their existing units into any other Schroder fund distributed by DBS, The switching fee will be waived. 3. Redeem their units at the prevailing NAV. Please note that the Manage will continue to publish weekly NAVs for the Fund, which may be different from the current NAV of S$0.6932 (as at 19 November 2008).

Investor is subject to option #1 as the default option if they do not decide.

What’s Wrong?
In my opinion, they’re now trying to unilaterally alter the product behaviour and go against what they have sold to consumers. Being a retirement fund with maturity date in 2025, how can they, within just 8 months of launch, say the profit lock-in mechanism can no longer support a NAV beyond $1.0004. As a long term investor, I understand the volatility of the markets and am willing to ride the downs and look forward to the ups in the next 26 years. But these people are telling me sorry, at best they can pay me a NAV of $1.0004 (with no guarantee) in year 2025! Essentially, they are trying to modify key benefits #3 and #4 listed above to their advantage.

With these changes, the product is substantially different from how it was marketed to me.

The options to consumers are equally ridiculous. The 1st option is asking the investor to remain status quo till maturity in 26 years time. And for that, the investor will be rewarded with NAV $0.0004 return but with all their caveats that tells you it’s not guaranteed. The 2nd option is asking the investor to sell it at current NAV (i.e. make loss of close to 50%) and buy another Schroder fund. The 3rd option is the worst: asking investor to sell it at current NAV, make a loss, and we part ways.

I feel DBS and Schroder could have put in greater efforts to protect consumers’ interest. And unlike the case of the mini bonds, the DBS Schroder LiveSure 2025 fund doesn’t involve default. But yet, they are asking consumers to accept unreasonable draconian actions which would mostly inflict financial losses.

I am seeking refund, from the bank, the full amount I’ve invested. I urge other investors to exercise your rights and not opt in to any of their 3 proposed options.

Colin Ho

Survey:
http://www.surveymonkey.com/s.aspx?sm=7adJB4Ub4k7OqUE8YLkzkg_3d_3d