Sherry flags tougher margin lending regime

Financial planners will have to provide clients with far more information on commissions and other remuneration arrangements relating to margin loans under changes currently being pursued by the Federal Government.

The Minister for Superannuation and Corporate Law, Senator Nick Sherry, has used a speech to the Insurance Council of Australia today to make clear that the Government is conscious of the need for those recommending margin loans to be better trained and for disclosure with respect to commission structures around margin loans to be far more transparent.

Sherry said it was important that investors not only received clear advice about why a particular product or strategy was being recommended to them but “also what’s in it for the person or firm recommending it”.

“Margin lending providers will have to be licensed by the Australian Securities and Investments Commission (ASIC) and those who provide advice on margin lending will need to be trained to provide that advice,” he said.

“For the first time, margin lending will be properly regulated in Australia. Investors will be informed about the risks of margin lending, as well as the potential rewards of the product — all in plain English.”

Sherry said conservatively geared margin lending might have a role in a balanced investment strategy but it was critical that potential investors were fully informed about how margin lending works in both rising and falling markets.

“The new, clear disclosure regime will fill this information gap,” he said.