Conducting Due Diligence on Service Providers

It is part of your fiduciary duty as an investment advisor to perform due diligence in many areas of your practice.  Performing due diligence is a review of all the material facts relative to a relationship, be it a consultant, outsource professional, mutual fund company, custodian or investment advisor.

When a service is outsourced the investment advisor retains the fiduciary responsibility for the delegated service.  For example, let’s say you outsource the maintenance of your back-up data.  Your server crashes and you need to restore your data.  You contact the outsource provider and discover there is no back-up to restore.  No one, either you or the outsource provider, checked to be sure the data was being backed-up.  The buck stops with the fiduciary, the investment advisor.

As a result, each investment advisor should review each service provider prior to hiring and periodically after hiring.  Policy and Procedures should be in place discussing how the due diligence will be performed initially and ongoing.  Also, how those reviews will be documented should also be discussed in the Policy.

For assistance with creating a policy for the performance of due diligence or guidelines on how to perform due diligence, contact Cindi Hill at

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