Netwealth undertakes governance overhaul after First Guardian case

Netwealth will overhaul its investment governance after admitting failures that exposed more than 1,000 superannuation members to losses tied to the collapsed First Guardian fund. The company has agreed to pay $101 million in compensation and faces court-ordered reforms following legal action by the Australian Securities and Investments Commission (ASIC).

Court finds systemic due diligence failures

Federal Court Justice McEvoy ruled in August that Netwealth Superannuation Services (NSS) and Netwealth Investments (NIL) breached their obligations under the Corporations Act. The trustees failed to obtain or assess sufficient information about the First Guardian Master Fund before offering its Diversified Class and Growth Class options to members, the court found.

NIL approved the investment options without understanding their risks, including potential illiquidity, and did not adequately inform members of those risks. Members were allowed to allocate up to 100% of their accounts to the products, which later collapsed. The court determined the trustees did not provide financial services “efficiently, honestly and fairly,” violating sections 912A(1)(a) and 912A(5A) of the act.

ASIC chair Sarah Court said the case highlighted the need for rigorous due diligence by superannuation trustees. “Netwealth admitted it failed to obtain sufficient information about First Guardian and failed to undertake sufficient enquiries to properly understand the risks,” she said. “Today’s outcome sends a clear message that superannuation trustees must put members first.”

Compensation and enforceable reforms

Netwealth paid the $101 million in compensation to affected members in January, restoring their accounts to pre-collapse levels. The company also agreed to cover ASIC’s legal costs. In an ASX statement, Netwealth CEO Matt Heine said the court’s confirmation of the settlement allowed the firm to “move forward” and continue supporting members.

The fallout prompted Netwealth to enter an enforceable undertaking with the Australian Prudential Regulation Authority (APRA), requiring an independent review of its investment governance processes. The company launched Program RISE—Reviewing Investment Standards and Excellence—to strengthen onboarding and monitoring of investment options.

Heine said Netwealth was delivering on key milestones under the APRA agreement, including greater integration of investment governance and adviser oversight. “We are increasing our investment and prioritising continuous improvement of the investment governance framework for the benefit of superannuation members,” he said. The company is also engaging with the Financial Services Council to support regulatory reforms.

The case illustrates how quickly governance gaps can translate into real losses for members. While Netwealth has moved to address the immediate damage, the broader question is whether other trustees have similarly lax oversight of third-party investment products. The answer may not surface until the next fund collapses.

APRA’s involvement suggests regulators are watching closely. The enforceable undertaking requires Netwealth to implement changes under independent supervision, a step that could become more common if other trustees are found to have fallen short. For now, the payout offers some relief to affected members, but the long-term impact on trust in the superannuation system remains an open question.

Netwealth’s governance overhaul includes improved transparency in the review and monitoring of investment options. The company said it would prioritize “fit for purpose regulations and standards” to better protect members’ interests in the future.