The collapse of Storm Financial ensured many hard lessons were learned about margin lending and how it should be conveyed as a strategy to clients, according to the participants of a Money Management roundtable.
The roundtable, conducted in Sydney this week and sponsored by the Bendigo and Adelaide Bank, concluded that both planner and client education sat at the core of using margin lending as an appropriate tool within a broader financial planning strategy.
Canberra-based planner Wayne Lear acknowledged that the manner in which margin lending had been used within the broader Storm Financial strategies had impacted the public's view of the use of margin loans.
"It's just unfortunate that there wasn't a real lot of education around that and instances like Storm certainly do put the rest of the industry in a bad light, when in actual fact, the best time to have gotten into a margin lending-type strategy was March 2009," he said.
"But everyone gets very, very scared, the Government gets scared, when lots and lots of people are unduly hurt by strategies that they should never, ever have gotten into in the first place," Lear said.
Head of platform and product sales at Ord Minnett, George Deva, agreed that the impact of the Storm Financial collapse could not be underestimated.
"I don't think we should understate what Storm did, and that was [that] people lost their livelihoods, their life savings, their homes; but the consequence of that was that it really shed a light on the distinction between the quality and the appropriateness of advice — and then the infrastructure and the product, in this case margin lending, which was used to deliver that," he said.
Deva said one of the positives to emerge from the situation had been that the lending providers had put in provisions to make such products a lot more robust, such as responsible lending provisions, the communication of margin calls, and technology that allowed more transparency between the adviser and the client on their margin.
"And in terms of the appropriateness of advice, I think it's incumbent upon the wider industry to make sure that something like Storm never happens on our watch again," he said.
The full roundtable will be published in 27 March edition of Money Management.
