Adviser opinion on gearing on the up, research reveals

More financial planners are looking at gearing to invest as an appropriate strategy for clients than in previous years, according to new research.

According to the latest research from Investment Trends, the vast majority of financial planners believe their clients can benefit from the use of borrowings to boost investment returns (89 per cent, up from 82 per cent in 2018)

But while their views on gearing to invest are improving, advisers’ outlook for domestic equities remains subdued, said Investment Trends, noting the average adviser expects the All Ordinaries Index to rise by less than 2 per cent over the coming 12 months – vastly lower than the 4 per cent to 6 per cent levels observed prior to 2019.

“Advisers do not expect the local equities market to repeat its strong 2019 performance, prompting more advisers to consider gearing to magnify investment returns for their clients,” said Investment Trends analyst John Carver.


“While the use of gearing to invest in the advice channel remains below pre-GFC levels (only 21 per cent of planners and 60 per cent of stockbrokers currently recommend margin lending), most advisers consider gearing products as part of their advice process.

“Margin lending remains the most popular option, but there is also appetite for non-margin lending products such as internally geared funds, home loan re-draw facilities and lines of credit.

Margin lending in advice a growing issue

The Investment Trends research found that the retention of margin lending users in the advice channel is a growing issue, with a quarter of stockbrokers and nearly half of planners (43 per cent) having used margin lending in the past with clients but no longer do so.

However, it said these dormant users are open to resume their usage, with 71 per cent of stockbrokers and 78 per cent of planners saying they can be encouraged to start using the credit product again.

“Many advisers are open to re-engaging with margin lending, but improved product features are important to convert interest into action,” Mr Carver said.

“For instance, significantly more stockbrokers would be encouraged to use these products if they could structure loans that avoided margin calls (23 per cent, up from 9 per cent) and were given more choices to protect their clients’ initial capital (12 per cent, up from 5 per cent).

“While improved product features are key, margin lending providers must also continue maintaining their high levels of service and support, particularly their BDM support – a good BDM relationship is among the top three reasons why advisers favour their main provider aside from its good reputation and range of approved shares/funds.”

Adviser opinion on gearing on the up, research reveals
Adviser opinion on gearing on the up
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Adrian Flores

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].

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