Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 342

Long-term optimism for margin lending but share outlook subdued

(Editor's introduction: League tables of the best-performing managed funds of 2019 featured geared funds prominently, but it was primarily driven by leverage into a booming market. We explained what happened in this article. At the same time, Investment Trends has surveyed another form of gearing, margin lending, and here is a summary of their findings).

Key highlights from the Investment Trends Margin Lending Adviser Report are:

  • Advisers’ views on gearing to invest are improving despite their subdued market outlook
  • Innovative products are key to rejuvenating the margin lending space.

Investment Trends has kept a close eye on the use and appetite for geared investment products in Australia for over a decade, tracking the rise in the popularity of margin lending products in the build up to the GFC and their subsequent fall. Total outstanding margin debt has remained largely steady since 2012, at around $10 billion, which is well below the $40 billion peak in 2007.

Chart 1: Margin debt outstanding in the direct, stockbroker and financial planner channel

Borrowers taking on much larger loans

Our research shows the profile of margin lending users evolving markedly over the past decade. While overall user numbers have fallen, a wealthier group of individuals has remained, with the level of outstanding margin debt per investor more than doubling between 2012 and 2019 (from $111,000 to $235,000). This group is also increasingly non-advised, with the share of outstanding margin debt held by direct investors increasing from 36% in 2012 to 48% in 2019 (outstanding margin debt among non-intermediated investors increased 3% to $5.3 billion in the 12 months to June 2019).

This smaller pool of wealthier investors appear less interested in short-term speculation and more inclined to use geared investments to build long-term wealth. Compared to a decade ago, these margin lending investors are also more conservative in their gearing levels, making them less likely to trigger margin calls (also check out Graham Hand’s excellent primer on the impact of geared investments here).

In 2019, the LVR for the average margin lending investor stands at 42%, significantly lower than levels seen prior to the GFC or the maximum level offered by lenders.

Advisers use for a select group of clients

In the intermediary channel, advisers are no less prudent and selective in recommending margin lending products. While 60% of full-service stockbrokers and 21% of financial planners provide advice on margin lending products, these advisers only do so for select clients (typically using these products for only one in ten clients).

However, both stockbrokers and financial planners are increasingly consider gearing to invest to be an appropriate strategy for their clients. The vast majority of stockbrokers believe their clients can benefit from the use of borrowings to boost investment returns (87%, up significantly from 72% in 2018), and this outlook is even stronger among financial planners (89%, up from 82%). Looking forward, advisers’ intentions to use margin lending have also recovered from 2018 lows (see Chart 2).

Chart 2: Intentions to increase/decrease use of margin lending among stockbrokers and financial planners

Outlook for shares not strong

While their views on gearing to invest are improving, advisers’ outlook for domestic equities remains subdued. The average adviser expects the All Ordinaries Index to rise by less than 2% over the coming 12 months, or vastly lower than the levels observed prior to 2019 (see Chart 3). The fact remains, many advisers consider gearing products in their advice process – as part of their best interest duty to their clients – irrespective of their views on geared investments.

Chart 3: Stock market return expectations among investors, stockbrokers and financial planners

Dormant users may reactivate

Activating or reactivating the advice channel is a growing issue for the margin lending industry. A quarter of stockbrokers and nearly half of planners (43%) have used margin lending in the past with clients but no longer do so. Still, these dormant users are open to resume their usage, with 71% of stockbrokers and 78% of planners saying they can be encouraged to start using the credit product again.

A key catalyst to convert interest into action is improved product features. Compared to last year, significantly more stockbrokers tell us they would be encouraged to use these products if they could structure loans that avoided margin calls (23%, up from 9%) and were given more choices to protect their clients’ initial capital (12%, up from 5%).

While innovative products are key to rejuvenating the margin lending space, lenders must continue maintaining their high levels of service and support, particularly their Business Development Manager support. A good BDM relationship is among the top three reasons why advisers favour their main lender aside from its good reputation and range of approved shares and funds.

The greater the support and education they receive from lenders, the better that advisers will be equipped to evaluate and utilise these geared investments for their clients.

About the Report

The Investment Trends 2019 Margin Lending Adviser Report examines the use of gearing to invest among Australian stockbrokers and financial planners. The study is based on a survey of 182 financial planners and 200 stockbrokers who provide financial advice, concluded in November 2019.


Recep Peker is Research Director at Investment Trends. This article is general information and does not consider the circumstances of any person.



Leave a Comment:


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Meg on SMSFs – More on future-proofing your fund

Single-member SMSFs face challenges where the eventual beneficiaries (or support team in the event of incapacity) will be the member’s adult children. Even worse, what happens if one or more of the children live overseas?

Latest Updates


'It’s your money' schemes transfer super from young to old

Policy proposals allow young people to access their super for a home bought from older people who put the money back into super. It helps some first buyers into a home earlier but it may push up prices.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.


Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.


Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.


Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.