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Margin loans on the uptake

By Madeleine Collins
2 minute read

Investors are warming to margin lending, a report has found.

A buoyant market and better client understanding about gearing has driven the popularity of margin loans, a survey from research house Investment Trends has found.
"Of the nearly 350 full service brokers we surveyed in December, over three-quarters of those who advised clients on gearing identified margin loans as their most used form of leverage in 2006," Investment Trends director Mark Johnston said.

"This compares with our earlier survey of financial planners that found just over two-thirds primarily used margin loans."

Around 300 planners were surveyed in late 2006.

Gearing is now common practice amongst investors because they are better educated, Colonial Geared Investments general manager Craig Keary said.

"They're becoming more sophisticated and understand more about what they're doing," Keary said.

The Investment Trends/Colonial Geared Investments margin lending broker report found that leverage and wealth creation outweighed secondary benefits like flexibility and unlocking of capital.

It also found that brokers select from a roster of two or three margin lending providers, whereas planners generally used one or two.

"A smaller number of [financial planning] clients have a margin loan. They're not selling them as much as brokers," Johnston said.

Adelaide Bank subsidiary was the preferred product provider for two-thirds of full service brokers, followed by Macquarie Investment Lending.

Around two-thirds of brokers indicated they would consider changing providers.

For planners, Colonial Geared Investments was the most popular supplier whereas direct investors preferred CommSec.

"What's interesting about margin lending is that no one really dominates," Johnston said.