Clients trust that their financial advisor s are going to place their money in safe hands, with money managers and firms that are reliable and above board. That’s why it’s imperative that advisors don’t slack off during the due diligence process. While the process can often be a cumbersome one, to say the least, doing it properly will benefit not only one’s clients, but will also help in keeping up with regulators’ new demands.

To perform the diligence process properly, there are many steps that advisors must take that go well above and beyond what a simple web search can provide. That’s because an internet search on a money manager will typically come up with information that the firm’s public relations managers have been purposefully promoting. Information that may be less flattering is often less prominently exposed.

An advisor should, in general, be taking a more proactive approach when investigating or doing due diligence on a manager they are interested in investing with. Researching social media for telling or negative posts is a good first step. So is looking into any regulatory actions that may have taken place at an investment management firm. Advisors should also make sure to research whether or not an investment firm has been involved in any kind of lawsuits, including those that were settled outside of court. Lawsuits that are settled often won’t appear in a company’s public documents, but they can serve as a warning about how the firm handles its business. (For related reading, see: Is Your Broker Ripping You Off? )

Bankruptcy filings and criminal records can also be found in locations where a particular manager may reside or work, and are another example of documents that should be reviewed. Clearly, they would serve as a red flag when considering whether or not to do business with this firm. Another important step to take is to verify the educational credentials that a manager may lay claim to.

Recommending a Fund

Looking at the performance history and track record of a manager’s funds is also a key part of the due diligence process. An advisor may even want to talk to various people working in other departments of the investment firm to get a sense of what has been happening there. This approach may help in learning about issues that may not be disclosed in the company’s literature. Taking the in initiative to perform due diligence oneself for specific areas of interest is always a good idea, but purchasing data from third-party advisors is also advisable and an important part of the due diligence process. (For related reading, see: What Women Want From a Financial Advisor .)

One more key area to examine fully is the fund’s assets or holdings. It’s important to make sure that the investments in a fund are in line with similar funds or with its key benchmarks, and that the fund is not invested outside of its mandate, as this will affect performance. Relying on due diligence provided by turnkey asset management programs can be useful, but advisers should still make sure to thoroughly review these programs to find out what they cover. In fact, performing some due diligence on all vendors or third-party data providers an advisor uses is a good idea. So is carefully evaluating the brokers that hold and trade client’s assets. (For related reading, see: Why Financial Advisors Need to Earn the CFP Mark .)

Meet with the Manager

Talking directly with a money manager is especially important, particularly when the manager is investing in alternative products. That’s because there are some investment vehicles, such as hedge funds. that hold certain proprietary information or follow certain strategies that they are not required to disclose in written documents. So spending some face-to-face time with the manager is always a good idea. The Securities and Exchange Commission. in fact, issued an alert to advisers this year. which outlined some specific responsibilities that advisors should be taking upon themselves to better protect their clients. For one, advisers should be looking for any disciplinary history an investment firm has imposed on a manager, and they should find out if the firm is willing to talk about it. This information is all part of the larger picture and an important part of the process. (For related reading, see: Finra: How it Protects Investors .)

Advisors should make the extra effort to perform the proper amount of diligence on both investment firms and third-party information providers. Taking the time to execute an extensive due diligence program will earn points with incumbent and prospective clients and serve to expand an advisor’s understanding of the products and service providers they employ. (For related reading, see: Educating Your Clients About Cybersecurity .)