In fact, the due diligence alone, if implemented properly, is enough to make many advisors' heads swim. This article will explore what advisors should know about proper due diligence, how they are implementing it, and some of the tools available to help them fold the process into their businesses in a more streamlined fashion.

Nuts And Bolts

The process of conducting adequate research on money managers-comparing performance, business practices and processes, determining the right managers to implement the asset allocation and making sure those managers are a "good fit" for the allocation-involves a multitiered process. As an advisor's clients gain wealth, the process becomes more complex.

The challenge for independent advisors is to find access to the same extensive research information that wirehouse advisors get. Such access can be limited by operating budgets, locating the best resources and hiring additional staff to manage the resources within the advisor's practice. Up to now, advisor due diligence tools have been limited, but new platforms are being developed that encompass more of what they need in one offering. As these new platforms continue to develop, advisors will be able to streamline this and other areas of the SMA consulting processes, making the SMA business more attractive.

But What Services Do They Need To Access?

First, a basic list of due diligence process components needs to be identified. Bare bones due diligence involves looking at three primary areas of a manager's operations: philosophy, people and process. Some of the areas that must be researched include (among a plethora of other things) the examination of a manager's:

Trading system

Operations and administrative functions

Fee structures

Possible conflicts of interest

Management style

Marketing materials

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