Better due diligence is needed as investment advisors increasingly steer clients to alternative investments, the Securities and Exchange Commission said today.

In a risk alert, the agency said its examiners are finding some advisors are misleading clients in marketing materials and other communications about the scope and depth of due diligence they are conducting on hedge funds, private funds and other non-traditional investment vehicles

The agency said it is also seeing and warning against advisors omitting alternative investment due diligence policies and procedures from their annual reviews

The SEC emphasized the importance of monitoring third-party service providers’ compliance with alternative investment due diligence.

The SEC’s increased focus on conflicts of interest showed up in this risk alert, as well, with a warning against investing in or recommending a limited offering to some clients while giving preferential treatment, such as reduced fees or greater liquidity, for the same investments to other clients.