Clients rush to gearing in bear market


By Sarah Kendell

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The number of advice clients requesting a margin loan through their financial planner had spiked, driven by volatility in markets creating opportunity for investors, according to Investment Trends.

The research house’s latest “Margin Lending Planner Report”, based on a survey of 417 financial advisers, revealed 31 per cent of those who currently advised on margin loans said the choice to use gearing had been instigated by their client, compared to 21 per cent in 2014.

At the same time, planners who advised on gearing had experienced a 15 per cent average increase in the amount of margin loans they were writing compared to the previous year.

Investment Trends head of research for wealth management Recep Peker said the increase in margin loans was coming from a client perception that markets were now undervalued.

“We’re seeing a repeat of 2012, where the proportion of loans instigated by clients also spiked after a turbulent year in markets,” Peker said.

More investors were also choosing to take out a margin loan through their adviser as they were looking for support and education around the process, he said.

David Arnold, head of margin lending group Leveraged, agreed the relative value presented by a gearing strategy at the moment was driving investor interest.

“The combination of low interest rates, relatively cheap share prices and steady dividends have combined to prompt people to explore and revisit gearing as a strategy to build and diversify a share portfolio,” Arnold said.

He added the strategy was becoming appealing to more younger borrowers, who were regarding it as a better risk-reward trade off than property given current capital city house prices.

The research also revealed nearly half of planners who recommended margin lending to clients intended to use it more as a strategy in the next 12 months.

At the same time, 53 per cent of those advisers said the reason they would increase gearing use was because it was in the client’s best interest.

“With planners targeting this advice at a more sophisticated clientele, margin lending is becoming a more common wealth-creation strategy,” Peker said.

Additionally, the report revealed planners were consolidating their relationships with margin lenders, with 55 per cent recommending loans from only one lender, up from 42 per cent in 2014.

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