Process giving peace of mind

This article is part of
DFM - December 2014

Reputations are hard won and easily lost. Professional, in-depth and quality due diligence helps safeguard a business, reassures clients, and provides useful information to advisers.

The completion of the due-diligence process should be a file that supports the advisory firm’s decision to recommend an investment house. Any conclusions drawn should be able to stand up to serious scrutiny in the future.

Most investment firms will be glad to help the adviser by providing their own pre-populated questionnaire, which should cover the initial queries about fiscal standing, disaster recovery planning, investment process, team quality, as well as regulatory permissions and custodial arrangements. The questionnaire will expand upon and align with the information that is already published on the investment firm’s website.

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Other sources

Third-party evidence about the investment firm is also available, both from rating agencies and the regulator.

The Financial Services Register provides considerable details about each regulated firm and its authorised individuals. Rating agency statistics will also provide details of comparative performance and charges, as well as an opinion of the quality of the underlying process. Awards are further evidence that the investment firm has opened itself up to scrutiny and is well regarded.

All of the above checks provide initial evidence that helps an adviser select suitable investment houses. The most important point is that the investment firm offers solutions that are suitable for the adviser’s clients.

The advisory due-diligence process must include a review of the investment solutions available to ensure they meet the needs of the client bank in terms of attitude to risk and capacity for loss.

One size rarely fits all

It is unlikely that one house will be able to cater for the needs of all clients. Instead, the advisory firm will usually require a panel that aligns with the needs and profile of its client bank.

Personal contact with the staff of the investment house will be important to ensure the two businesses can work well together. Relevant questions may include:

● Is the information provided to the client by the investment house sufficient and how does it integrate with the adviser’s documentation?

● Is the administrative contact between the businesses efficient and how flexible is the process when something out of the ordinary occurs?

● Will an investment manager be available to meet clients and advisers upon request?

Satisfactory answers to such questions often depend on the cooperation of a number of individuals from each firm who have different requirements.

Continuous assessment

It is important to remember that the due-diligence process is not static but a work in progress that needs to be reviewed on a regular basis.

This can be more easily achieved if the businesses are working closely together in a proactive way with a two-way flow of information.

In this way due diligence becomes an embedded process that is both compliant and client-focused.