Consider this conversation I had with an advisor – the advisor mentioned he was interested in a particular portfolio reporting software. I asked what he thought of it. In one sentence, he said that he hasn’t seen it, heard about it from an advisor, will have a demo on it in two days, and if he likes it, he will buy it. He then asked me how much the software cost because if it’s too expensive, he won’t look at. I didn’t bother to ask for the definition of “too expensive.”
There are areas of your business where due diligence efforts come into play such as the following:
- If a prospect tells you he/she is considering another advisory firm, you probably would educate the prospect on the importance of asking the right questions before selecting an advisor, and provide some of those questions
- When making investment and asset allocation decisions
- Areas where your compliance manual states that due diligence is necessary
And then there’s your back-office…
Don’t let due diligence take a back seat to a hasty decision-making process. Everyone is busy and loves a great sales pitch. However, the worst time to find out you didn’t ask enough questions is during the implementation. After the contract is signed and the check is written isn’t the time to be looking at the contract carefully.
Due diligence needs to be effective, not complicated
Your goal is to make the right decision, not a quick decision. The following are several due diligence strategies for your firm’s business decisions:
Understand that the right solutions aren’t always derived from a standard survey or checklist provided by custodians or other people offering free advice
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Analyze the generic services offered by custodians and others, covering all areas of your business. Compare these services to your unique clients – the ones with several trusts, legacy positions that require careful management, and foundations with distribution rules. Can you provide custom-level services to these clients or be limited in your services? |
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Understand the person who developed the solution and the salesperson are not the ones doing your implementation, conversion, or servicing your business
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Ask who will be servicing your firm. What if that person is one you would not hire? Ask about turnover at the client services level. Are you comfortable being serviced by a new hire every six months? |
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Understand the challenges of asking for and following-up with references because businesses provide names of only satisfied clients
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Ask open-ended questions such as what others don’t like about the product or services, or, if they had to do the process over again, what would they do differently? |
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| Understand that businesses have different pricing models |
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Analyze several proposals. Translate the proposals into a consistent basis for comparison. If one firm charges more for custom work than another firm, ask for examples of custom work provided. Will you be sacrificing quality for price? |
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Understand the phrase “you’ll sleep better at night” doesn’t describe anyone’s services
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Imagine your client leaving for another firm because that line was included in the firm’s sales pitch. In your case, analyze your options without the clichés. Does it make sense to you? If not, ask to show you, rather than just tell you. |
Before making a decision based on a great sales pitch or time constraints, remember that due diligence also applies to your back-office.