Financial planners are repositioning from stock pickers to asset allocators: Margin Lending Adviser Report

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Report examines the evolving use of gearing among Australia’s stockbrokers and financial planners.

Leading research firm Investment Trends has released its 2018 Margin Lending Adviser Report, where we examine the evolving use of gearing among Australia’s stockbrokers and financial planners.

The study is based on a survey of 766 financial planners and 223 stockbrokers who provide financial advice concluded in November 2018.

This year’s study highlights a number of important trends:

  • Advisers recognise the benefits of gearing for multiple client segments
  • In the margin lending space, no single provider dominates both the planner and broker channel
  • As investors’ needs evolve, many stockbrokers and financial planners are repositioning from stock pickers to asset allocators

Advisers recognise the benefits of gearing for multiple client segments

In these uncertain times, advisers’ appetite to recommend gearing for non-property investments has remained subdued, but many still recognise the benefits of gearing in their client’s portfolios. Nationwide, 6,000 currently recommend margin lending – the most popular form of credit for investing in shares and funds – while many also utilise alternative methods such as lines of credit, home equity products and geared share funds.

The vast majority of stockbrokers (73%) and financial planners (83%) believe that gearing has a role to play in their clients’ portfolios. Brokers and planners most often believe gearing is appropriate for their HNW clients (those with $1m+ in investable assets), affluent clients ($250k to $1m) and accumulators (aged 35-49).

“Advisers believe a wide range of client types can take advantage of gearing, not just young investors looking to accelerate the growth of their investments in the accumulation phase,” said John Carver, Analyst at Investment Trends.

“Despite many advisers recognising the benefits of gearing, enthusiasm for products such as margin lending has declined. Heightened market volatility has certainly held back many advisers from increasing their gearing advice, and instead we are observing a greater proportion of clients themselves prompting their adviser to use these products in the first place,” said Carver.

“Given the challenging market conditions, advisers and their clients will be assessing gearing product providers even more closely. Providers will have to demonstrate and clearly articulate their proposition, not only from a cost perspective, but also their service levels and quality of communications.”

In the margin lending space, no single provider dominates both the planner and broker channel

At present, Leveraged has a strong hold in the broker channel, used by 64% as their preferred margin lender, while CommSec Adviser Services leads in the planner channel (31% say it is their most-used lender). Westpac holds second spot in both channels (with their BT Margin Loan and St George Margin Lending solutions).

“The two leading margin lenders each have distinct qualities that sets them apart from the competition,” said Carver. “Leveraged users most often acknowledge the provider’s outstanding customer service and support, while CommSec Adviser Services users favour the provider’s strong brand, accurate administration and the approved product list.”

“The way advisers engage their clients is rapidly changing, and lenders must recognise and take this into account in their development roadmap,” said Carver.

As investors’ needs evolve, many stockbrokers and financial planners are repositioning from stock pickers to asset allocators

As client needs and expectations evolve, so do the products and services of Australia’s stockbrokers and financial planners. For instance, HNW investors increasingly desire more than just domestic equities advice from stockbrokers, and in response only 33% of brokers intend to position themselves as stockbrokers to their clients in 12 months’ time. Instead, 25% are looking to call themselves wealth managers, 14% investment managers and 13% financial advisers.

In line with their clients’ evolving needs, stockbrokers and financial planners anticipate significant changes to the products they recommend, moving particularly towards solutions that provide diversification, low cost, and require less admin and paperwork.

“The growth in the use of ETFs and managed accounts among advisers reflects their quest to expand their service offering and align their proposition more closely to their clients’ needs, said Carver. “We expect this trend to persist as advisers increasingly prioritise diversification and capital preservation when selecting investments for clients.”

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