How We Can Help Clients with 1031 Due Diligence - Kalos Case Study

by Scott Smith

Our clients are well acquainted with the third party due diligence we produce on alternative investments and their sponsors. And what we do there is easy to explain, because it results in a tangible report made up of independent research, findings, and conclusions of risk that BDs and RIAs use to make investment decisions. 

What is sometimes less clear is what more we can do for our clients to reduce the friction in serving clients’ needs with alternatives. We are often asked what customized “risk management” services mean at the individual client level. You’ve asked, and we’ll answer. But instead of explaining what these services are on this blog, we’ll show you in context, through real life stories of our clients. 

Today, we’ll briefly share Kalos Financial’s experiences with 1031 due diligence and how we are helping them gain operational efficiencies so they can meet the needs of their advisors and clients.

Feeling the squeeze from increased product demand  

Kalos Financial’s advisors had an increasing number of clients who require real estate investments designed to accommodate tax-deferred exchanges. The firm had had success with 1031 exchanges in the past, but the amount of work involved in vetting 1031 opportunities was becoming problematic as demand escalated. The depth of research needed to identify appropriate DST programs and the time sensitivity inherent in 1031 exchanges were slowing down the home office’s review process for the non-DST investment programs reps were also pursuing. The firm decided that it needed additional support and increased efficiency for its 1031 due diligence.

Pinpointing the critical needs

FactRight’s team of product experts and attorneys met with representatives from Kalos. Together they reviewed Kalos’s current platform and discussed the firm’s prior experience with alternative investments. The discussions went deep, covering open and closed program platforms, how deals were typically sourced, the firm’s bad experiences with alts and specific hesitations, and what reps felt their clients did and did not want in a product or sponsor.

The solutions that relieve the pressure

At the end of the consultation, FactRight was able to help Kalos create a menu of offerings that matched its platform to its 1031 exchange goals. The firm now receives detailed DST product reviews and recommendations, ongoing check-ins and sponsor updates that support its operational needs, regulatory compliance, and growth opportunities. And advisors now have easy access to a list of quality programs that fit their clients’ objectives and training that lowers their own risk.

Like any alternative investment, DSTs require the firm to undertake a continuous commitment to diligence and high-quality training to mitigate risk for clients and itself. By partnering with FactRight to support its diligence and training needs, Kalos was able to reduce the strain on its internal resources and grow its business strategically at a fraction of the cost of a dedicated staff person.

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