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Compliance tip of the week: Dos and don’ts of due diligence

Phil Young

One of the FCA’s upcoming thematic reviews will be on due diligence. We don’t yet know what that means but there are some dos and don’ts for advisers, based on my experience.

  • Don’t confuse due diligence with research: you need to do both. Whether it is an investment, product or platform, you need to consider the breadth of products and providers available and demonstrate a sensible strategy of narrowing this down. After that, you might only take a detailed look into one or two products to make absolutely sure it is suitable – that part is the due diligence.
  • Do make your due diligence specific to you and your clients’ needs. Ask some questions which are specific to your own business and don’t let providers just send you their boilerplate diligence pack. If they cannot be bothered to tailor a few simple questions at the outset, what will they be like to deal with on more complex issues later?
  • Don’t pretend you have checked something when you have not. There are limitations to the amount of diligence an adviser can do. Can you buy in additional information elsewhere, such as analysis of financial position, service ratings from other advisers or a third-party audit of their systems and controls?
  • Do make sure any third-party information you use is objective and unbiased. If you are getting it for free, how did the third-party get paid? Could it be biased?

Finally, don’t forget to write it all down and make sure that everyone reads it.

Phil Young is managing director at Threesixty Services



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