Advisers shun capital protection

Capital protected products, which received a boost amid the uncertainty of the global financial crisis, are now being shunned by financial planners as too expensive and inappropriate for their clients.

New research undertaken by Wealth Insights into the market for capital protected products has found nearly three-quarters of advisers do not use capital protected products and most are unlikely to do so any time soon.

According to Wealth Insights managing director Vanessa McMahon (pictured), the main reason respondents cited for not using capital protected products was that they were too expensive.

Indeed, the research revealed that 46 per cent of respondents said they were not using capital protected products due to cost, while 32 per cent said they were not doing so because they were not suitable for their clients.

A further 29 per cent of respondents said they were not confident in the capital protected products, while 27 per cent said such products were two complicated.

McMahon said the research painted a grim picture for the manufacturers of capital protected products because the number of advisers using them had not grown in two years, and seemed unlikely to grow in the future.

She pointed to the fact that at the same time in 2009, 37 per cent of advisers were using capital protected products – compared to 27 per cent today.

What is more, McMahon said few of the planners who used capital protected products recommended them to significant numbers of clients.

“Half the planners that use capital protected products use them for fewer than 10 per cent of their clients,” she said. “And those planners place less than 20 per cent of a client’s portfolio in them,” she said.

The Wealth Insights research detected some differences between the attitudes of aligned and non-aligned advisers when it came to the use of capital protected products, with 21 per cent of non-aligned advisers more likely to be concerned about it being the wrong time for their clients – compared to 8 per cent of aligned advisers.

Similarly, non-aligned advisers (36 per cent) were likely to be less confident in using capital protected products than aligned advisers (22 per cent).

McMahon said there appeared to have been little change in attitude on the part of advisers towards capital protected products over the last two years, with just 1 per cent of market flows going to such products.