Good governance in financial advice: What does it really mean?

Good governance in financial advice: What does it really mean? | Insurance Business New Zealand

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Good governance in financial advice: What does it really mean?

It can be easy to feel overwhelmed…

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By
Katrina Shanks

Good governance is a key component of the new regulatory regime that financial advisers operate in. But we know that, especially for smaller businesses, embarking on the path of good governance can be daunting. With so many facets to consider, and so little time to navigate your way through them, it’s easy to feel overwhelmed.

With this in mind, in late May we held an informative webinar with Heather Roy, David Whyte and Hamish Patel, as part of our ever-growing ‘Bring in the Experts’ series. We talked about what good governance in financial services means, and how adviser businesses can make the most of it.

For a more in-depth understanding, I welcome you to watch the full recording available in the Membership area of financialadvice.nz. In the meantime, here are some takeaways.

What does good governance mean?

Good governance means different things to different businesses, but at its core, the purpose remains the same: establishing an efficient, compliant, and resilient business.

In essence, good governance forms the backbone of any successful business. It’s about creating a roadmap that directs you to your end goals while simultaneously mitigating risks and identifying new opportunities. This roadmap provides a pathway, ensuring that the business stays on track towards its objectives – even if those objectives change over time.

Also importantly, good governance isn’t merely about the presence or absence of a board, but the principles a business upholds and the processes it follows. And for many adviser businesses, it’s about finding a balance between running day-to-day operations and the strategic planning required for future growth.

Put simply, good governance doesn’t just address the present – it also sets the stage for the future of the business. When it’s time to retire and sell the business, prospective buyers will look at how well it’s been managed. So, managing these aspects effectively enhances your business’s value and attractiveness in the market.

How small businesses can make it work for them

When it comes to small adviser businesses, one helpful tip that emerged from our discussion is that the governance model you choose should reflect the scale and scope of the business. For example, a Class 1 FAP licensee may not need an extensive governance framework compared to a larger entity. Once again, one size doesn’t fit all.

To get started, the first step is to reflect on your purpose – understanding why you’re doing what you’re doing. It can be easy to overlook or forget the ‘why’, in the ‘busyness’ of running a business. But this reflection can lead to valuable insights, potentially shaping your governance processes.

Familiarising yourself with the regulator’s expectations is another essential step. What are the requirements for decision-making and recording these decisions, for example? Once you understand these expectations, you can implement suitable processes. As David Whyte suggested, it can be a good idea to revisit your FAP licence application and systematically verify that all necessary components are indeed present and functioning effectively in your business.

Also remember that, if you have a limited liability company, you have specific duties as a director which you have to perform and abide by.

For those who are not quite sure where to start, the industry is abundant with resources designed to support them through this process. The key is to be proactive and seek out these resources. Also, external consultants can provide an outside perspective, pinpointing areas of improvement. The advice here is to engage with experts whose values align with yours and can communicate openly with you. While they need to understand the financial sector, their expertise should lie elsewhere – helping you address gaps in your governance structure.

And remember, talking to peers also helps. Your business doesn’t exist in a vacuum: it’s part of a wider industry, and other people might have already addressed the challenges you face.

One common pitfall to avoid

Don’t make governance decisions based on cost alone. Of course, we know that the cost of implementing good governance can be off-putting for smaller businesses. However, it’s crucial to reframe the perspective on this, by viewing governance not as a mere cost, but rather an investment in your business’s future growth and success.

When viewing governance as an investment, the challenge shifts from worrying about cost to identifying what you can afford and what will provide long-term benefits to your business. As Hamish Patel pointed out, you can liken it to a house renovation – it might be painful and expensive initially, but in the long run, you’re left with a more valuable property.

Here to help

By taking steps towards good governance, you’re not only complying with regulatory requirements but also building a more robust, resilient, and future-proofed business. And at Financial Advice NZ, we’re here to support you.

If you’d like to know more about our initiatives, visit financialadvice.nz and don’t hesitate to get in touch. 

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