New investment governance provider for AFSL launches

A new investment governance service provider has opened its doors for small to medium-sized Australia financial services licence (AFSL) holders to enhance and strengthen their governance frameworks.

Founded by three former Russell Investments directors Divyesh Bhana, Jonathan Ng, and John Venardos, BNV Investment Partners will focus on offering investment governance and bespoke services to assist licensees amid heightened scrutiny as a result of recent managed investment schemes failure.

Speaking to Financial Standard, Bhana said the collapses of the Shield and First Guardian Master Funds reflected the immediate need for an institutionalised level of governance in the industry and licensees should no longer wait to formalise the relevant framework.

However, especially among smaller practices, Bhana understands the constraints and limits these licensees currently struggle with due to their unique characteristics.

"They don't have the dedicated investment or governance expertise and/or the financial capacity to hire a full-time resource to do this... rather than hiring a full-time resource, we'll work with them to help set up their governance framework so that it's more manageable," Bhana said.

"What a licensee still needs to be able to do is exercise their independence, but [our service] gives them the foundations they need to ensure that they can scale without concern."

Meanwhile, Ng believes the current research houses model contains a huge loophole around conflicts of interest and highlighted there's been an "over reliance" on rating reports provided by them.

"We are going to try to change that dynamic," he said.

"In the institutional world it is usually the client that pays the consultant to do the research, and we're trying to empower financial advisers to conduct due diligence by giving them a framework that is risk based.

"Depending on what the scoring out of that may be, it would be escalated to their investment committee or a third party like us to do the research."

The firm can also provide "deep dive" analysis and due diligence services of specific investment products, Ng added, while reiterating the industry may have underestimated the importance of enforcing a comprehensive governance structure.

"I'd say a lot of them probably have not been conscious of [implementing comprehensive investment governance]," Ng said.

"I think a lot of people would think, 'well, nothing's major has blown up in my practice; everything's fine, and therefore I don't need to change', whereas others are slowly realising the change."

Bhana echoed the sentiment, stating two themes stood out when engaging with the licensees, and those are everyone intends to do the "right thing" and make sure they have the appropriate structure in place.

"It's not a question about whether they have any governance. Smaller licensees tend to have less formalised governance frameworks as what you would expect from an institutional point of view and that's the area we're trying to improve," he said.

"We're trying to help them put in place more rigor around decision making and the way they think about their governance approach."

Bhana also believes the consolidation of the industry, as well as the rapid adoption of managed accounts have supercharged the demand for his offering.

Moving forward, Bhana said BNV Investment Partners will continue to consult with regulators, potential clients, and other related parties to navigate and explore future developments and opportunities.