Why advisers should give investment governance greater consideration

As investment regulation increases, advisers need to understand how platforms meet governance standards.

North’s recent webinar discussed the future of platform governance, the importance of investment choice and flexibility, and how platforms and institutions can continue to empower financial advisers with Group Executive, Platforms, Edwina Maloney; Director of Growth & Wealth Distribution, Kristine Goodwin; and General Manager, Managed Portfolios, David Hutchison. 

Why is investment governance under greater focus?

After the collapse of Shield and Guardian investment options, many across the finance industry now treat investment governance as a priority. 

Many advisers, investment managers, and regulators now want to understand how platforms, like North, manage their responsibility for superannuation and client funds amid all the regulatory changes.

“They really want to understand what our frameworks and methodologies are around platform governance, what's on the menu, and how it got there,” said Maloney. 

The focus for the recent regulatory enquiries is to ensure advisers, super funds, and investment providers are carrying out proper due diligence.

“ASIC wants to make sure platforms are doing the right thing for clients,” said Hutchison. 

However, many of these new regulatory frameworks have been designed around traditional super fund constructs, so platforms need to determine how those responsibilities apply in a broad-choice environment rather than simply relying on existing industry practice.

“They've helped providers to account for what their role should be and put a real line in the sand around what is therefore expected of platforms,” said Hutchison. 

“Given the rise of managed accounts, about $300 billion in assets now, so roughly 30% of all advised assets, naturally ASIC wants to fully understand what's going on in this space”.

What are regulators focusing on? 

The core areas regulators are focused on are:

• Onboarding 
• Ongoing review
• Rectification 

Hutchinson said platforms must assess carefully whether an investment should be available for superannuation in the first place. Then must continue reviewing it rather than treating approval as set-and-forget and act quickly when issues arise through rectification and communication with members and advisers.

Hutchison added that a platform’s role is to “filter out what is bad.” 

Every adviser should expect strong governance from a platform because it demonstrates confidence in the quality of options available to clients.

“You should be able to rely on them to keep out bad, poor-quality options,” said Maloney. 

Goodwin added that governance matters because advisers need to be able to grow, scale and operate efficiently without governance failures creating friction, reputational issues or extra business costs.

“A challenge with their platform partner’s investment governance is not ideal. It can create non-client facing work to become a frustration,” said Goodwin. 

How North delivers a best-practice approach to investment governance 

Maloney said advisers should be able to rely on their platform partners to have a robust investment governance process. 

Hutchison said North has a rigorous approach to onboarding new investment options on the platform.

“We're going to challenge and question them, as we always have, to make sure that all of our clients can have confidence in [the fund’s] capability,” said Hutchison. 

“We've split it out now into a two-dimensional approach to assess products, and that gives us an overall traffic light status- red, amber, amber-green - which determines if and who can approve a different investment option.”

North’s two-dimensional approach consists of investment due diligence and operational due diligence, creating a more detailed approval process before an option becomes available as an investment option on platform.” 

Once a new fund is on North’s menu option, it’s not a set and forget process - the platform continues to test and improve it to ensure it exceeds industry best practice.

“That same assessment is carried out every single quarter to make sure that every single investment option on the menu is still suitable for members,” he added. 

Read more about our complete investment governance process.