We are self-funded retirees in our late 70s. Most of our income comes from a diversified parcel of shares with E*Trade, a margin lender, through St George Bank. Can my, or any other margin lending broker, without my consent or knowledge, use my shares as collateral for their other clients' margin lending or margin calls? If yes, how can I prevent it? If such danger exists and is not preventable, does the situation warrant an expensive transfer of our share holding to one of the more costly broking services of the secure four main banks? G.P.

ETrade is owned by one of the four main banks, ANZ. I checked with ETrade, which tells me E*Trade and ANZ Margin Lending do not engage in scrip lending for short selling (that is, lending out client shares) so you should not have any concerns about losing your shares in that fashion.

As well, under its share investment lending legal structure, the customer remains the beneficial owner of all of its shares held as security for the loan and ETrade will transfer back to you all your shares upon repayment of the margin loan, as long as you are not in default under any other loan with ANZ. I read that to mean you need to keep an eye on ANZ debts other than margin loans although, to a simple person like me, that seems to be an extreme extension of a client-sharebroker relationship.

The Australian stock exchange is deemed to be responsible for governing stockbrokers but it claims it only monitors a broker's on-market activities.

It is not responsible for monitoring off-market activities such as margin lending and stock lending, which are governed by the broking firms' individual client-broker relationships, which I presume are subject to contract and common law. Even where shares are security for a loan, I personally cannot see how a broker, regardless of any fine print, can take a person's stock and lend it to another without express approval.

Refinancing and tax deductions

If I refinance, with a new loan, an investment property I have had for some years, by increasing the amount of the loan, can I increase my claim for the interest on my tax return? I would be refinancing with the same bank and I need the money in the equity for personal expenditure and to pay off some of my home mortgage. E.B.

The actual security used to borrow money is irrelevant to the tax deduction. You can claim a deduction for interest paid if the borrowed money is invested in assets producing assessable income. Spending the money on yourself and your mortgage doesn't count. Sorry.

Half the truth about interest

It is my understanding that interest calculated daily should be added to the capital on a daily basis which then becomes the next total sum from which the next interest is calculated. However our bank disputes my calculations and instead adds the interest earned only at the end of the month to the capital instead of at each separate transaction. I feel that there is quite a lot of difference between advertising interest calculated daily and not paying it daily. M.B.

Interest calculated daily and paid daily will obviously compound more often and you would receive more interest than that paid monthly, quarterly or at even longer intervals. I agree statement interest calculated daily is only half the truth if, in fact, it is paid less frequently, which it always is. Unfortunately, advertising, marriages and other human interactions thrive on half-truths. You could always complain to http://www.advertisingstandardsbureau.com.au!

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: bank ombudsman 1300780808; pensions 132800.