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Essential Documents in the Due Diligence Process

September 23, 2016

Essential Documents in the Due Diligence Process

September 23, 2016 | by Beth Glavosek and Alan Royalty | Blue Vault and Blue Vault Due Diligence

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In the world of investments, due diligence describes the duty of care and review to be exercised in connection with evaluating public offerings of securities.[1]

With regard to alternative investments, it’s incumbent upon Independent Broker Dealers to thoroughly evaluate alternative investment offerings before making them available to financial advisors for their clients. In fact, the Financial Industry Regulatory Authority (FINRA) states that, “A Broker Dealer has a duty—enforceable under federal securities laws and FINRA rules—to conduct a reasonable investigation of securities that it recommends.”

Collecting key documents is an important part of the due diligence process. The following is a list of common documents requested and reviewed:

  • Corporate documents, such as certificates of incorporation or bylaws
  • Financial statements
  • Market studies/reports on the sponsor’s product
  • Key tangibles, such as mortgages or title documents
  • Contracts, leases, agreements, and details on employee benefits plans and pensions
  • Insurance policies
  • Key information from sponsor management, such as financial and ownership information and litigation matters

Other key pieces of information will need to be gathered from outside sources, such as credit or background checks, title and lien searches, and certificates of good standing.

This list is by no means exhaustive. Any document that contributes to Broker Dealers being able to make complete, informed, and responsible decisions about the sponsor’s alternative investment offering should be collected and reviewed – ideally by a third party due diligence firm that will prepare an independent investment research report.

[1] Stanley Foster Reed and Alexandra Reed Lajoux. The Art of M&A, A Merger Acquisition Buyout Guide (Third Edition).

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The Blue Vault Summit could not have been more perfectly timed. This gathering of the Broker Dealer and Sponsor communities provided insightful and open discussion from several vantage points. These conversations are paramount, especially in a time of significant regulatory change.

Matthew C. Strife Suitability Manager, The O.N. Equity Sales Company Broker Dealer Educational Summit 2016 April 14, 2016