Weakened investment markets and concerns associated with the European debt crisis are responsible for a near 10 per cent drop in the number of investors accessing capital protected products, an industry report found.
The Investment Trends 2011 Capital Protected Products report found capital protected product usage among investors fell by 9 per cent, or 45,500, down from 50,000 over the year to December 2011.
Of the 1319 investors surveyed, 23 per cent listed 'inappropriate market conditions' as the reason why they had not started using the products.
However, investors said of the capital protected products in the market, more than half of them offered protection against a market downturn.
"This is largely consistent with the findings in our financial planner research, in which 79 per cent of financial planners said they intend to recommend capital protected products to protect clients against a market downturn," Investment Trends analyst King Loong Choi said.
Choi said the findings indicated that market performance expectations play a key role in "driving and hindering" investor appetite for the products.
"When we consider that 9 out of 10 investors expect the market to grow by only 4 per cent per annum over the next five years, the challenge for the capital protection market is how to deliver to investors' needs and provide protection at a reasonable cost," he said.
Despite the fall, the increase in the number of financial planners showing interest in the products provides opportunities, he said.
The report found 35 per cent of financial planners were advising their clients to use capital protected products in their portfolio. This figure was up 4 per cent from last year's figure of 31 per cent.
More financial advisers (14 per cent, up from 9 per cent) were planning to advise their clients do so over the next 12 months, it said.
"Not only are more capital protected product investors using advisers, especially financial planners, three out of five investors said that their adviser was involved in their most recent capital protected product investment, and 44 per cent said they first learnt about this investment from their adviser," he said.
"However, one of the key reasons that prevent planners from increasing their use of capital protected products is their desire for simpler structures."
The report found one in three planners said their clients' preference for "simpler investments" prevented them from using capital protected products.
The report was based on a survey of 1319 investors in capital protected products and financial planners in November and December 2011.
