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New financial planning software has been developed which aims to reduce the risk associated with the provision of margin lending advice.
In response to ongoing controversy regard ing the practices of Storm Financial and new regulatory requirements for margin lending, software provider Midwinter Financial Services has created a new module on its Reasonable Basis software platform.
Midwinter director Matthew Esler said the new tool — called Gearing Manager — was cre ated “specifically in response to the effect that the global financial crisis has had on mum and dad investors in geared investments and in light of the Storm Financial debacle”.
“We saw Storm splashed across the media and we thought there has to be a hell of a lot of clients in the same position,” he said.
Esler said Gearing Manager enables advisers to “very quickly” ascertain their clients’ margin loan positions.
Esler said the software can be used to identi fy clients who are in margin call territory as well as those who are sitting in the buffer zone — the area above the maximum loan to valua tion ratio (LVR) allowed by the lender but not yet at margin call.
“It’s also been designed as a preventative tool,” Esler said.
The software will give advisers the ability to highlight to clients what effect a fall in share markets could have on their margin loan portfolio.
“So no matter what gearing level the client is at, the adviser will be able to easily show the client what percentage falls in the market will do to their position.”
The software also provides advisers and clients with solutions for getting out of margin call or buffer zone positions. The software pro duces full margin lending Statement of Advice reports, Esler added.
He said the software is product specific, allowing advisers to “choose the actual mar gin lender being used by the investor, and the underlying investment products, to determine what [the client’s] current maximum LVR position is”.
The software links with services and products from the margin lending divisions of Macquarie, St George, BT and Colonial, as well as those offered by Leveraged Equities and CommSec.
The software also enables advisers to ascer tain what a client’s total LVR is, as distinct from their margin loan LVR.
Esler pointed to the practice in which investors borrow against existing equity before taking margin loans against those investments.
“In effect they’ve dou ble geared, and many of the Storm clients were in that position.”
A client’s total loan position is linked to their ability to service the loan. An upcoming upgrade of the Gearing Manager module will include the ability for advisers to predict cash flow levels and, there fore, a client’s ability to service loans.
“It’s important that we link the levels of debt with the client’s net income serviceability,” Esler said.
Use of the Gearing Manager software — which is the first of its kind available — will enable advisers and their dealer groups to set tar geted gearing parame ters.
“If a financial adviser under a dealer group licence is using Gearing Manager they won’t be able to exceed the lend ing parameters set by the dealer group,” Esler said.
“So the dealer group will have control over appropriate levels of debt.”
Existing clients of Midwinter’s Reasonable Basis software, including Count Financial, AXA Financial Planning, Professional Investment Services and Millennium3, will have automatic access to the Gearing Manager module.
The group is also working on a debt refinancing model for margin lenders, “so they can assist their margin lending clients with refinancing to lower interest rate margin loans”, Esler said.
