Taking Investment Governance beyond the tick box
Answering ASIC’s 4 Critical Investment Governance Questions—Without an In-House Team
The Regulatory Reset
The Australian financial advice industry has entered a period of genuine regulatory recalibration. For many years, licensees and their advisers operated within a framework that, whatever its shortcomings, provided clarity: follow the steps, document the process, and the best interests’ duty was deemed satisfied. That framework is being dismantled.
The collapse of the Shield and First Guardian Master Funds in 2025 exposed catastrophic governance failures across an entire product supply chain — not a rogue actor, but a systemic breakdown of oversight, accountability and evidence. ASIC's response was unambiguous. Regulatory expectations for AFSL holders have been reset. Governance must not merely exist — it must function, and licensees must be able to demonstrate that it does.
Simultaneously, the Delivering Better Financial Outcomes reforms arising from the 2023 Quality of Advice Review propose the repeal of the safe harbour steps in section 961B(2) of the Corporations Act. The safe harbour provided a structured checklist through which advisers could demonstrate best interest compliance. Its proposed removal is not a relaxation of the standard — it is an elevation. Without a prescribed process to follow, every licensee must now construct and evidence its own governance framework, demonstrate that investment decisions are competent and consistent, and show that the interests of clients are genuinely placed first.
This is the context in which every AFSL licensee — retail and wholesale — now operates. And it gives rise to four questions that ASIC will ask.
The four questions ASIC will ask of every licensee
- How do you govern investment decisions?
- How do you know that investment products remain appropriate?
- How do you manage conflicts of interest — and can you evidence that client interests come first?
- How do you know that advisers under your licence are acting reasonably and in clients' best interests?
This paper examines each of these questions in turn, considers what good governance looks like in practice, addresses the operational challenges that governance uplift presents for licensees without dedicated resources, and reflects on the strategic opportunities — and client outcomes — that genuine governance improvement can deliver.
The Four Questions: What ASIC Will Ask — and What It Means
Question 1 — How do you govern investment decisions?
Investment governance is frequently described by reference to its outputs: committee charters, meeting minutes, investment registers. These are the artefacts of governance, not governance itself. A licensee may have all of these in place and still lack an effective governance capability.
At its core, investment governance defines who is responsible for making decisions, within what framework, and how they are held accountable for the outcomes. ASIC expects a structured, documented decision-making process — not ad hoc judgement, and not a process that exists only on paper.
What ASIC is looking for
A documented Investment Governance Framework that establishes the structure, accountabilities and decision-making hierarchy.
An Investment Committee with a clear charter, defined composition, quorum requirements and conflict management procedures.
An Investment Policy Statement that articulates the investment philosophy, risk tolerance, asset allocation ranges and review cadence.
A delegation framework that specifies which decisions are made at which level and when escalation is required.
Evidence that the governance framework is operating — not merely documented.
Implications for licensees
For licensees that have historically relied on a compliance process rather than a genuine governance framework, this is a material shift. ASIC will not be satisfied with a governance manual that sits on a shelf. It will look for contemporaneous evidence that investment decisions were made within an established framework, that the rationale for decisions was documented at the time, and that there was genuine independent challenge.
BNV perspective: The three components of effective governance are decision rights (who may decide what), rationale (documented reasoning evidencing fiduciary duty), and challenge function (independent, competent and authorised to require that an objection be answered). These conditions are rarely satisfied simultaneously and is precisely why independent governance support adds genuine value.
BNV perspective: The three components of effective governance are decision rights (who may decide what), rationale (documented reasoning evidencing fiduciary duty), and challenge function (independent, competent and authorised to require that an objection be answered). These conditions are rarely satisfied simultaneously and is precisely why independent governance support adds genuine value.
Question 2 — How do you know that investment products remain appropriate?
The appropriateness of investment products is not a fixed property. Markets change, managers evolve, business models shift, and a product that was suitable at the time of inclusion on an Approved Product List (APL) may no longer be appropriate for the clients it serves. ASIC's enforcement history — including the Shield and First Guardian matter — consistently reveals a pattern: licensees relied on third-party research ratings without conducting independent assessment and failed to act when early warning signs emerged.
What ASIC is looking for
A documented APL governance framework with defined inclusion and removal criteria.
Systematic manager monitoring against quantitative and qualitative benchmarks.
A watchlist process that identifies products under review and triggers for removal.
Integration of Design and Distribution Obligations (DDO) compliance into licensee-issued product governance.
Evidence that product reviews are conducted on a defined cadence and that outcomes are documented.
Implications for licensees
ASIC has been explicit that licensees cannot simply outsource their responsibility to a research house. A research rating is an input to a decision it is not the decision. Licensees must demonstrate their own considered assessment of whether a product remains appropriate for their client base and maintain documented evidence of that assessment over time.
A further implication arises from the DDO regime. Licensees distributing financial products must ensure they are distributing within the product's target market determination. This adds a dimension of ongoing product oversight that must be embedded in governance processes, not treated as a one-off compliance exercise.
Question 3 — How do you manage conflicts of interest — and can you evidence that client interests come first?
The Royal Commission identified conflicts of interest as the central failure of the financial advice industry. The structure of adviser remuneration, platform economics, related-party product arrangements and referral fees created a system in which the commercial interests of advisers and licensees were systematically misaligned with the interests of the clients they served.
ASIC's expectations under Regulatory Guide 181 are clear: disclosure of a conflict of interest is necessary but not sufficient. Conflicts must be actively managed, and licensees must be able to evidence that management.
What ASIC is looking for
Conflicts register that identifies all categories of conflict, both financial and non-financial.
Documented management controls for each identified conflict.
Committee declaration procedures that require members to identify conflicts before decisions are made.
Board-level oversight of conflicts management.
Evidence that client interests were demonstrably prioritised over commercial interests in specific decisions.
Implications for licensees
The evidentiary burden here is significant. ASIC will not accept a conflicts policy as evidence of conflicts management. It will look for the paper trail on specific decisions, the conflicts declared at the time, the controls applied, and the outcome. Licensees that cannot reconstruct this record for specific decisions are acutely exposed.
The Shield and First Guardian lesson:
ASIC's investigation found that conflicts of interest were not identified, managed or monitored. Related-party arrangements existed without any documented controls. Board and committee oversight was nominal rather than substantive. The lesson for licensees is that undocumented conflicts are, in ASIC's view, unmanaged conflicts.
Question 4 — How do you know advisers under your licence are acting reasonably and in clients' best interests?
The proposed repeal of the section 961B(2) safe harbour steps is the most significant practical challenge arising from the DBFO reforms. The safe harbour provided a structured, sequential checklist through which advisers could demonstrate best interest compliance. Its removal does not reduce the obligation, but it removes the prescribed ‘tick box’ method for satisfying it.
Under the post-repeal framework, compliance with the best interests’ duty reverts to a judgement standard under section 912A of the Corporations Act. Here the licensee must ensure that financial services are provided efficiently, honestly and fairly. There is no checklist. The standard is professional judgement, and the licensee must be able to evidence that its advisers are exercising that judgement competently and consistently.
What ASIC is looking for
A risk-based supervision framework that identifies where advice quality risk is highest.
A file review methodology that assesses the quality of the advice process, not just documentation completeness.
Evidence that advice is being developed within a consistent, documented investment framework.
Mechanisms for identifying and addressing dispersion in client outcomes across the adviser cohort.
A culture of challenge and accountability and not just oversight of outputs.
Implications for licensees
The removal of the safe harbour makes the quality of the licensee's supervision framework the primary determinant of its regulatory risk. Licensees that have historically relied on process checklists as a proxy for advice quality will need to develop a genuinely risk-based, outcome-focused approach to adviser oversight.
This is not simply a compliance task. It requires the licensee to have a clear investment philosophy and framework against which adviser conduct can be assessed — which, in turn, requires the foundational governance architecture described in Question 1.
What Good Governance Looks Like: The BNV Investment Governance Framework
Robust investment governance is not defined by the presence of documents or committees. It is defined by whether decisions are made, by the right people, for the right reasons, and whether that can be demonstrated. The BNV Investment Governance Framework is built on this principle.
The Framework is structured around five sequential but interconnected stages that mirror ASIC's own supervisory approach. Together, they create a governance lifecycle that moves from architecture to evidence, from evidence to improvement.
Each stage builds on the previous. A licensee cannot evidence governance it has not implemented; it cannot implement a framework it has not designed; and it cannot improve a program it has not measured. The five stages are not a project — they are a cycle.
BNV's three beliefs on investment governance:
Decision quality: A common and enforced decision framework, combined with an effective challenge function, improves the quality of investment decisions and, through them, client outcomes.
Accountability: Clearly defined roles and responsibilities in the decision process ensure matters do not fall through gaps — a failure that characterised the Shield and First Guardian collapses. Defensibility: All decisions are supported by clear, contemporaneous rationale and documentation that can be provided to a regulator as evidence that governance is working — not reconstructed after the fact.
The Operational Challenge: Governing Without a Governance Function
ASIC's regulatory expectations have evolved to resemble those of institutional financial services businesses. Therein lies the challenge, licensees are expected to be moving towards a governance framework that has investment committees with independent members, documented decision frameworks, quarterly governance cycles, contemporaneous evidence packs.
These are achievable expectations but presupposes that licensees have adequate resources, expertise and time that many licensees simply do not have.
The governance gap
The governance gap between regulatory expectations and current capability is widest for the businesses that have grown beyond the capacity of informal governance but have not yet built a formal governance function. These businesses typically face the following constraints:
No dedicated investment team — investment decisions are made by advisers, principals or a part-time investment committee without institutional governance expertise
Limited access to independent challenge — internal staff lack the authority or expertise to challenge investment decisions effectively; external research houses have the competence but no authority
Insufficient time — principals and responsible managers are client-facing; governance is treated as a back-office compliance function rather than a core business process
Documentation gaps — decisions are made but not documented; rationale is not recorded contemporaneously; evidence cannot be reconstructed
No systematic monitoring — APL reviews are conducted reactively, driven by adviser concerns or performance alerts rather than a structured governance calendar
These constraints do not make compliance impossible. They make the case for a co-sourced governance model — an external specialist working alongside internal resources on an ongoing basis — that delivers effective, institutional-quality oversight scaled to the licensee's business.
Engaging an experienced and qualified third-party governance provider gives the licensee immediate access to institutional-quality oversight, genuinely independent challenge, and systematic monitoring. These capabilities can be difficult and costly to build and, more importantly, to sustain in-house. The outsourced provider can become a permanent part of the governance architecture, freeing principals and responsible managers to remain client-facing while governance runs reliably in parallel.
A specialist provider brings established frameworks, current regulatory fluency, and a structural independence that internal staff, however capable, cannot credibly replicate, because genuine challenge and segregation of duties are difficult to achieve from within a business subject to its own commercial pressures. Critically, this is not a temporary substitute to be retired once internal capability matures; it is an enduring layer of independent accountability that works alongside and strengthens internal resources, ensuring that governance keeps pace with growth for as long as the business relies on it.
ASIC's position on outsourcing is clear: an AFSL holder cannot outsource responsibility, only its activities. But that distinction is precisely where a co-sourced model earns its place: while responsibility stays with the licensee, the provider can build and maintain the contemporaneous book of evidence that allows the licensee to stand behind its decisions with confidence rather than anxiety. The licensee remains accountable for the quality, appropriateness and effectiveness of all governance functions, whether delivered internally or by an external provider. Any co-sourced arrangement must itself be governed, with a formal agreement, clear delineation of decision-making authority, and periodic review of the provider's performance.
The operational challenge of governance uplift is real, but it is a challenge that can be met. The starting point is an honest assessment of where the current framework stands followed by a durable operating model, which we believe will comprise of internal resources and an independent provider working in partnership, that embeds and continuously strengthens governance capability without disrupting the day-to-day operation of the business.
The Strategic Opportunity: Governance as Competitive Advantage
It would be a mistake to treat the governance reset as purely a compliance obligation. Licensees that build genuine investment governance capability will be better positioned with regulators, with advisers and with the clients they serve than those that treat it as a burden to be managed. Strong governance is increasingly recognised as a genuine competitive differentiator.
Attracting and retaining better quality advisers
High-quality financial advisers are increasingly selective about the licensees they join. The best advisers want to work within a framework that supports the quality of their work. A framework that provides clear investment guidance, access to robust research and due diligence, and a governance structure that backs their advice. Advisers who have built practices on genuine client relationships understand that a weak governance framework is a reputational risk to their own business, not just to the licensee.
A licensee that can demonstrate robust investment governance through a structured APL, a functioning Investment Committee, and a documented decision framework — offers something that process-only licensees cannot: confidence. Confidence that the investment framework is sound, that products on the APL have been properly assessed, and that the licensee will stand behind the advice its advisers provide.
As regulatory expectations increase and the cost of poor governance rises, we believe that advisers will increasingly gravitate toward licensees that have invested in their governance capability. Those that have not invested will find it progressively harder to attract the quality of advisers that their business model depends upon.
Scaling with confidence
Growth is difficult without governance. The absence of a consistent investment framework creates dispersion — clients with comparable risk profiles, advised by different advisers within the same licensee, experiencing materially different investment outcomes. Dispersion is measurable, and in an ASIC review, it is a red flag.
A strong governance framework eliminates the conditions that produce dispersion. It provides advisers with a clear, consistent investment framework within which to work; it standardises the decision-making process; and it creates the documented infrastructure that allows the licensee to supervise adviser conduct at scale. This is the foundation on which a licensee can grow its adviser numbers with confidence — not the source of concern that characterises growth under a weak governance framework.
The implications extend beyond regulatory risk. A licensee with a robust governance framework is a more scalable business. Its processes are documented and repeatable. Its investment decisions are defensible. Its supervision framework provides early warning of emerging risks rather than discovering them in a complaint or an ASIC review.
Business value and commercial outcomes
Strong investment governance has measurable commercial implications that extend beyond the regulatory and operational:
Higher business multiples on sale — acquirers of advice businesses increasingly conduct governance due diligence. A licensee with a functioning, documented governance framework commands a higher valuation than one with governance gaps that will require remediation post-acquisition.
More favourable Professional Indemnity insurance terms — PI insurers assess governance quality as a proxy for claims risk. Licensees that can demonstrate robust investment governance, effective conflicts management and systematic adviser supervision are better positioned to negotiate favourable coverage terms.
Reduced regulatory risk — the most commercially significant implication. ASIC enforcement is expensive: in management time, legal costs, remediation costs and reputational damage. A functioning governance framework is the most effective form of regulatory risk management available to a licensee.
Conclusion: What This Means for the Clients We Serve
Ultimately, the purpose of investment governance is not regulatory compliance. It is better outcomes for the people whose financial futures depend on the quality of the advice they receive. This point is sometimes lost in discussions about framework design and regulatory risk. However, when a licensee invests in genuine investment governance, the ultimate beneficiary is the client. That is not a regulatory argument — it is the reason the regulatory expectation exists in the first place.