Broker Check

Investment Approval Process

May 22, 2019

Last month I attended our annual Strategic Financial Alliance (SFA) conference.  For those that are not familiar, SFA is our broker dealer - the firm through which Sherpa can provide a full range of products and services and which helps us comply with the numerous industry regulations.  At the conference, their Due Diligence team presented an in-depth (and humorous) skit explaining all of the steps they take to approve an investment product.  Since I sometimes will recommend alternative investments - those that aren't the traditional stocks and bonds that most people are familiar with - I wanted to layout the process to help you understand the various layers of review before I recommend any of these investments. 

SFA's Due Diligence Team

  • When reviewing an alternative product for possible inclusion on our platform, the first step this team takes is a high level screening that reviews the audited financial statements (when available) of the proposed investment, 3rd-party due diligence reports, current capital raise and traction, and track record of previous offerings by the sponsor and management team.  They also look at which other broker-dealers or selling groups have approved the investment and possible exit strategies of the fund.  The team will either reject the investment, hold and request more information or move it forward into a deep analysis ("looking-under-the-hood").
  • If the team chooses to move forward and do a deep analysis, they will have detailed conversations with the investment sponsor to get more information, ask for clarifications, and make suggestions.  Once satisfied with the information received, a detailed report of up to 30-pages of information will be compiled and passed along to the Investment Team.

 SFA's Investment Team

  • The team consists of 8-members - two from the Due Diligence Team and the remaining six are executives within our broker dealer.
  • This team will review the Due Diligence Team's report and will either reject the investment, ask for more information or approve.

 Advisor (Me)

  • First, I review the investment offering documents.
  • I will meet with the investment firm's local wholesaler to discuss the offering and, at times, attend a more detailed 1-2 day due diligence meeting at their headquarters.
  • I also take an education course of the specific investment through one of our industry's resource services for alternative investment research, training and compliance support.
  • Depending on my familiarity and history with the investment firm, I may talk with other advisors to find out if they're using the investment and/or have used other offerings from the investment company. 
  • Finally, I review the suitability of the investment for a specific client based on factors such as the client's financial situation, objectives, risk level, liquidity needs, current portfolio, and tax situation.  It is at this point that I will discuss with a client if I’m satisfied that an investment could be beneficial to them.

To provide a scope, the Due Diligence Team receives around 200-250 requests per year to review new investments.  Of these, around 80 will go through the initial screening and 50 will move into a deeper dive.  Of the 50, about half will be approved by the Investment Team.  The process lasts 2-months on average, but can last up to six-eight months.

While these steps don't imply nor guarantee the success of any investment, I believe it helps to show a deep and thoughtful examination before I suggest an investment to any of my clients.

- Mike Spieler, Owner