CANSTAR analysis has found that the average number of ASX companies on financial institutions’ acceptable securities lists has risen quite significantly since the height of the GFC, indicating that institutions are comfortable taking on a higher level of lending risk. “One broad way in which a financial institution can reduce margin lending investment risk is to reduce the number of acceptable securities,” said CANSTAR Research Manager, Mitchell Watson. “CANSTAR analysis has found that just prior to the GFC, the average number of ASX securities on the acceptable securities lists of the financial institutions we rate was 520. This number had plummeted to an average of 390 by December 2009. Even by December 2012 the average number of securities was only 419, but by December last year that number had risen to 446 securities. This perhaps indicates a more optimistic economic outlook.”

While the average number of acceptable securities overall saw a marked decline, the average number of ASX 200 companies on the acceptable securities lists remained resilient throughout the GFC. Page 2 of 3

CANSTAR today released its margin lending star ratings report, awarding five stars to outstanding lenders in two profiles – Share Investor and Managed Fund Investor. CANSTAR margin lending star ratings is a consumer-friendly benchmark that compares both the price, including the interest rate and fees and charges, and features, including the maximum LVR, the number of shares/managed funds offered, repayment options and other account features. Five-star lenders are considered to offer outstanding value for money. There are three five-star products in each of the Share Investor, and the Managed Fund Investor profiles.

Share Investor profile

Within the Share Investor profile, ANZ, CommSec and St George achieved a five-star rating, all maintaining their position from last year.

ANZ’s rating is driven by its acceptable securities score, providing lending on both the highest number of ASX 200 stocks and the highest number of stocks overall. Currently, ANZ provide lending on more than 700 stocks, which is significantly higher than the industry average of 446 stocks.

CommSec maintains superior product features with good direct client services including an unlimited transaction history, “what-if” calculators and weekly newsletters. They notify clients within 24 hours when in buffer. They also offer trading in options and warrants.

St George offers investors a good balance between features and price. On the features front, St. George offers periodic statements, “what-if” calculators and the ability to trade options among many other features to its clients.

Managed Fund Investor profile

Within the Managed Fund Investor profile, CommSec, CommSec Adviser Services and St. George all achieved a five-star rating.

Both CommSec and the advice model, CommSec Adviser Services, maintain superior product features, with the Adviser Services model providing a wider range of acceptable securities than the purely DIY model.

St George achieves the top score for acceptable securities. They have an extensive acceptable securities list with lending offered on 1,811 funds. This is significantly higher than the industry average of 1443 funds. They also offer a buffer margin of 10%.

Consumers can download the full Margin lending star ratings report on www.canstar.com.au

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Client notifications

Advisers may have clients who hold margin lending facilities.  If this is the case, these advisers may have obligations under the Corporations Act to notify their clients of margin calls.

As you are likely aware, lenders are obliged to take reasonable steps to notify a client with a margin loan as soon as practicable where that loan is subject to a margin call.  If the adviser has agreed with their client and the margin lender that margin loan notices will be given to the client by the adviser, the adviser must take reasonable steps to notify their client of margin calls as soon as practicable.  To enable this, the lender must take reasonable steps to notify the adviser of the margin call.  

Responsible lending

We are aware that during market downturns there can be pressure on lenders to extend margin lending limits and/or loan-to-value (LVRs) ratios to minimise margin calls on clients.  We remind lenders (and their agents) that the responsible lending requirements continue to apply, including to any limit increases.  Therefore, lenders need to take care to ensure that any changes to lending limits and LVRs are consistent with responsible lending practices.  

Generally

While this may not be directly applicable to advisers, your members may receive increased inquiries about clients’ margin loans and we remind advisers both of these responsible lending provisions and the requirements to ensure any advice is appropriate.  It is also important during this time to ensure that licensees’ internal dispute resolution arrangements are appropriately resourced and consumers are informed about their right to access external dispute resolution (as necessary).

For more information:

• ASIC’s website material on margin lending obligations at the following link:  http://www.asic.gov.au/asic/ASIC.NSF/byHeadline/Margin%20lending
• Part 7.8, Division 4A, of the Corporations Act. 

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