Planners shy away from margin lending advice
Tuesday, 28 January 2014 12:10pm

Financial planners are shying away from margin lending advice following falls in the margin lending market in the second and third quarters of 2013.

The proportion of planners advising on margin lending fell from 55% in 2012 to 45% in 2013, according to an Investment Trends November 2013 Margin Lending Planner Report.

The number or planners recommending margin loans was down despite an improved market outlook, with planners' average return expectation from the All Ordinaries for the next year rising 9% in September 2013.

The research showed the total outstanding margin debt from the financial planner channel falling to $4.4 billion in September 2013, down 13% since December 2012.

At the same time, the direct investor channel rose to an outstanding debt of $4.7 billion in September 2013, up $330 million since December 2012.

Planners admit that regulatory changes have made advising on margin lending less attractive, with 13% of planners advising on it saying that they might stop using margin loans as a result of these changes.

"Further help from margin lenders with compliance and new licensing requirements is essential in order to stop the outflow in the planner channel," Investment Trends analyst S M Shahed said.

However, 47% of planners who keep recommending margin loans are intending to increase the use of these products, up from 41% in 2012.

The research points at improved market conditions such as interest rates or an increase in client demand as elements that would encourage advisers to keep recommending margin lending.

Lower interest rates keep being the reason why planners would switch lenders, with 37% saying they would change their main margin lender for lower rates and, on average, they are looking for a reduction of 59 basis points in the interest rate.

But the importance of product features seems to be picking up and as many as 29% of planners would switch their main margin lenders for better features, including margin call protection and early margin call warning.

The Investment Trends survey was conducted among 715 planners between September and November 2013.

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