Planners turn away from margin lending advice

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Increasing numbers of financial planners are eschewing margin lending advice, despite an improved market outlook last year.

It appears the impact of regulatory reform has not yet finished playing out and this is driving advisers away from margin lending, market research specialist Investment Trends said.

Based on an in-depth survey of 715 planners between September and November 2013, the 2013 Investment Trends Margin Lending Planner Report found the proportion of planners advising on margin lending fell from 55% in 2012 to 45% in 2013 and the total outstanding margin debt from the financial planner channel reduced to $4.4 billion in September 2013 (down 13% since December 2012).

One third of planners who still advise on margin lending say recent regulatory changes make advising on margin lending less attractive.
Thirteen per cent of current users said they might stop using margin loans as a result of recent regulatory changes, which means 1000 planners are at risk of soon leaving margin lending advice.

"It is evident from our research that the impact of regulatory reform has not yet finished playing out. 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 SM Shahed said.

Among the planners who continue to recommend margin lending, intentions of writing new margin loans over the next 12 months rose 6% compared to the previous study, with 47% intending to increase their use of margin lending.

Improved conditions – interest rate, market, and client demand – would encourage an increase in their use of margin lending for 77% of respondents, but there are many other things providers can do to help planners, such as simplifying processes and protected loans, Investment Trends said.

"A push from planners could certainly help grow the margin lending market, as a large proportion of loans written by planners are new loans rather than a shift of clients between lenders," said Shahed.

Only one quarter of recent margin loans established by planners were replacement loans. In contrast, two thirds of the recent loans established by direct investors were replacement loans.

While pricing is the main reason planners would switch lenders, with 37% of planners saying they would switch their main margin lender for lower interest rates, some 29% of users (up from 20% last year) would switch their main margin lender for better features.

The most sought after features include margin call protection and early margin call warning.