2019 Margin Lending Adviser Report: Innovative products are key to rejuvenating the margin lending space

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Leading research firm Investment Trends has released its 2019 Margin Lending Adviser Report, which examines the evolving use of gearing to invest among Australian stockbrokers and financial planners.

Key highlights:

  • Advisers’ views on gearing to invest are improving despite their subdued market outlook
  • Innovative products are key to rejuvenating the margin lending space

Advisers’ views on gearing to invest are improving despite their subdued market outlook

Both financial planners and stockbrokers increasingly consider gearing to invest to be an appropriate strategy for their clients.

According to the latest research from Investment Trends, the vast majority of stockbrokers believe their clients can benefit from the use of borrowings to boost investment returns (87%, up significantly from 72% in 2018). This outlook is even stronger among financial planners (89%, up from 82%).

While their views on gearing to invest are improving, advisers’ outlook for domestic equities remains subdued. The average adviser expects the All Ords Index to rise by less than 2% over the coming 12 months – vastly lower than the 4% to 6% levels observed prior to 2019.

“Advisers do not expect the local equities market to repeat its strong 2019 performance, prompting more advisers to consider gearing to magnify investment returns for their clients,” said John Carver, Analyst at Investment Trends.

“While the use of gearing to invest in the advice channel remains below pre-GFC levels (only 21% of planners and 60% of stockbrokers currently recommend margin lending), most advisers consider gearing products as part of their advice process. Margin lending remains the most popular option, but there is also appetite for non-margin lending products such as internally geared funds, home loan redraw facilities and lines of credit.”

Innovative products are key to rejuvenating the margin lending space

Retention of margin lending users in the advice channel is a growing issue. Currently, a quarter of stockbrokers and nearly half of planners (43%) have used margin lending in the past with clients but no longer do so. Still, these dormant users are open to resume their usage, with 71% of stockbrokers and 78% of planners saying they can be encouraged to start using the credit product again.

“Many advisers are open to re-engaging with margin lending, but improved product features are important to convert interest into action,” said Carver. “For instance, significantly more stockbrokers would be encouraged to use these products if they could structure loans that avoided margin calls (23%, up from 9%) and were given more choices to protect their clients’ initial capital (12%, up from 5%).”

“While improved product features are key, margin lending providers must also continue maintaining their high levels of service and support, particularly their BDM support – a good BDM relationship is among the top three reasons why advisers favour their main provider aside from its good reputation and range of approved shares/funds,” added Carver.

About the report

The Investment Trends 2019 Margin Lending Adviser Report examines the use of gearing to invest among Australian stockbrokers and financial planners. The study is based on a survey of 182 financial planners and 200 stockbrokers who provide financial advice, concluded in November 2019.

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