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

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

How not to run out of money in retirement

The life expectancy tables used throughout the financial advice and retirement industry have issues and you need to prepare for the possibility of living a lot longer than you might have thought. Plan accordingly.

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Latest Updates

Investment strategies

Have value investors been hindered by this quirk of accounting?

Investments in intangible assets are as crucial to many companies as investments in capital equipment. The different accounting treatment of these investments, however, weighs on reported earnings and could render ratios like P/E less useful for investors.

Investment strategies

Investors are threading the eye of the needle

As investors cram into ever narrower areas of the market with increasingly high valuations, Martin Conlon from Schroders says that sensible investing has rarely been such an uncrowded trade.


New research shows diverging economic impacts of climate change

There is universal consensus that the Earth is experiencing climate change. Yet there is far more debate about how this will impact different economies across the globe. New research sheds more light on the winners and losers.

SMSF strategies

How super members can avoid missing out on tax deductions

Claiming a tax deduction for personal super contributions can end in disappointment if it isn't done correctly. Julie Steed looks at common pitfalls and what is required for a successful claim.

Investment strategies

AI is not an over-hyped fad – but a killer app might be years away

The AI investment trend looks set to continue for years but there is only room for a handful of long-term winners. Dr Kevin Hebner also warns regulators against strangling innovation in the sector before society reaps the benefits.


Why certainty is so important in retirement

Retirement is a time of great excitement but it is also one of uncertainty. This is hardly surprising given the daunting move from receiving a steady outcome to relying on savings and investments.


This vital yet "forgotten" indicator of inflation holds good news

Financial commentators seem to have forgotten the leading cause of inflation: growth in the supply of money. Warren Bird explains the link and explores where it suggests inflation is headed.



© 2024 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.