What to look for in a Margin Lender?

A safe margin lender should:

1. Be a large deposit-taking bank

A Margin Lender who is backed by one of Australia's banks means the institution you are dealing with subject to strict risk and compliance rules.
 

2. Have a daily-maintained risk policy 

The framework for clients’ risk management responsibilities should be clear, strict and enforced daily.
 

3. Be proactive to help clients manage risk

Clients should have the tools to understand and manage their margin loan accounts with ease. A good client risk management suite of tools would, for example, include SMS buffer alter, top up and drawn down credit facilities, out-of-hours call centre access, one-stop-shop capability to manage funds between accounts.
 

4. Have core operations that stay in house

Your margin lender should be responsible for every part of the process in establishing, funding, and maintaining your margin loan. That means broking, clearing and settlement operations should be managed within the margin lending organisation.
 

5. Not permit stock lending

Your margin lender should not use your stock for any other purpose. All client securities should be maintained in the client’s name which means beneficial and legal ownership is always with the client.
 

6. Be capable of managing capacity and volume

Clients should have the confidence that their margin lending institution can manage all market conditions and you have access to products and information whenever required.
 

7. Have experience in the field

Ensure your provider has a good understanding of the product by looking at their history in the sector. CommSec has been a margin lender for 10 years and a stockbroker for 15 years. 
 

8. Have suitability tests

A prudent margin lender will ensure that only investors with enough understanding of the implications of gearing will be accepted as a margin loan client. Given the risks involved in borrowing to invest, your margin lender should not engage in a "hard sell" approach.