--- title: Top 7 Alternative Investment Due Diligence Considerations description: A prudent advisor should leverage third-party due diligence resources before determining whether the investment is a good match for an individual client. image: https://blog.factright.com/hubfs/Blog%20Images/AdobeStock_92679503.jpeg --- behance bloglovin dribbble email facebook flickr github gplus instagram linkedin medium periscope phone pinterest rss snapchat stumbleupon tumblr twitter vimeo xing youtube - [Facebook](https://www.facebook.com/FactRightLLC/) - [Twitter](https://twitter.com/factright) - [Linkedin](http://www.linkedin.com/company/395017?trk=tyah) - [Phone](tel:866-357-7779) [Report Center Login >](http://www.factrightreports.com/Account/Login) - [Home](http://www.factright.com/) - [ABOUT US](http://www.factright.com/team/) - Financial Advisory Firms - [FR Risk Management](http://www.factright.com/fr-risk-management/) - [Report Center](https://www.factright.com/resources/report-center/) - [Product Coverage](https://www.factright.com/resources/list-of-coverage/) - Product Sponsors - [Due Diligence Reporting](http://www.factright.com/due-diligence-reporting/) - [Preparing for FactRight Diligence](https://www.factright.com/preparing-for-factright-diligence/) - [Resources](https://www.factright.com/resources/) - [Report Center](https://www.factright.com/resources/report-center/) - [FactRight Webinars](https://www.factright.com/resources/webinars/) - [FAQs](https://www.factright.com/resources/faqs/) - [Events](https://www.factright.com/events/) - [Weekly Updates](https://www.factright.com/weekly-updates/) - [FactRight Blog](https://blog.factright.com/) - [Contact](http://www.factright.com/contact/) # Top 7 Alternative Investment Due Diligence Considerations June 07, 2017 by [FactRight](https://blog.factright.com/author/factright) ![Due Diligence](https://blog.factright.com/hs-fs/hubfs/Blog%20Images/AdobeStock_92679503.jpeg?width=320&name=AdobeStock_92679503.jpeg "Due Diligence")Advisors recommending alternative [investments to higher-wealth clients](https://blog.factright.com/what-financial-advisors-should-know-about-high-net-worth-investors) are thinking outside the box about how to generate higher returns. While some alternatives certainly can, and do generate better returns than are available in the equity markets, they are not without risk or other limitations. A prudent advisor should leverage third-party due diligence resources before determining whether the investment is a good match for an individual client.  Investors are attracted to alternatives,[like non-traded REITs for example](https://blog.factright.com/reit-research-how-to-leverage-real-estate-market-analysis-in-due-diligence), because they have generated yields that are significantly higher than the equity markets during the past few years. Despite the limited liquidity inherent in some alternative products, investors find the tradeoff for higher yield to be worth tying up funds for over a five-to-seven year period. Such investors with sufficient capital and an appropriate risk profile want to work with advisors who will guide them into the alternatives market so they can participate in these yields.  ## **Knowledge Increases Your Credibility**  The better informed you are about alternatives, by going the extra mile on due diligence, the more likely it is that you’ll attract high-wealth clients. You’ll be adding extra value to your services by recommending quality investments that earn a greater return for your clients. Here are our recommendations for 7 important due diligence steps you can take to retain your best clients and attract new ones. Your unique knowledge of alternative products is your marketing power.  ## **Here are Your Top 7 Considerations**  1. Ask the tough questions about the sponsor and the manager’s financial commitment to the investment program. Sponsors and executives who are personally invested in the success of the project are highly motivated to ensure that it will succeed. If the sponsor isn’t invested, perhaps this is a sign that your client shouldn’t be either.  2. If possible, set up in-person meetings with the sponsor’s principals or managers. It’s often easier to gauge the truthfulness of data in the offering when the direct source of the information is across the table from you. You’ll also get a better understanding of the cost structure, liquidity terms and the risks for each alternative.  3. Use third party data reports from reputable services like FactRight, even if there is a fee. These services do the hard work of digging deeper into due diligence so you don’t have to. Third party services are experts at finding and confirming the information on alternative investments. You’ll be able to confidently recommend—or not—a specific investment to your clients.  4. Talk to other financial advisors who have worked with the sponsor or product in the past. They have first-hand knowledge of the way the sponsor works and how accurately the sponsor presents its performance. Put little stock in the literature supplied by the sponsors. This material is intended to present the project in the best possible light with the most optimistic outcome. That said, track record is paramount. In looking at prior performance, has the sponsor done what it said it would do? If performance has faltered, how did the sponsor or its principals step up to limit losses for its investors?  5. Expect that the vetting process will take time. As with everything else, there will always be another “can’t pass up” opportunity. Don’t rush through due diligence because if you do, inevitably, you will miss something.  6. Consider your sources. Take the time to thoroughly vet the source of the information and how the source draws conclusions. As noted already, be wary of any sponsor-provided promotional materials. Give them the weight and credibility that they probably deserve—low and highly biased.  7. Due diligence is ongoing. Always be on the lookout for material changes that could affect a client’s investments.   ## **Provide Unique and Valuable Service**  One bad investment recommendation can utterly destroy even the strongest client relationships. That’s what this whole, due diligence exercise really comes down to—preserving and developing trusting relationships.  When you invest in your own knowledge, you invest in your client’s satisfaction and trust. You’re offering a credible service that puts you a step ahead of other advisors. Put the right people on your team to support your research efforts and make good, solid recommendations to clients. It’s you and your clients who benefit over the long term.  There is no clear guidance from the SEC about its expectations for advisors in the event of a compliance audit and no industry-wide standard about what to include in a due diligence review of alternatives. Incorporating the suggestions above, at a minimum, should help you cover some of the common concerns investors may have and secure their trust in your guidance.  [![New Call-to-action](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/2777169/dc8e2fd5-c89c-4128-9e09-d1e5626684f9.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/2777169/dc8e2fd5-c89c-4128-9e09-d1e5626684f9) [FactRight Takes Salt Lake City](https://blog.factright.com/factright-takes-salt-lake-city) [Navigating the Cap Rate Landscape: How Real Estate Cap Rates Relate to Real Interest Rates](https://blog.factright.com/navigating-the-cap-rate-landscape) [FINRA Regulatory Notice 23-08: Building on Regulatory Notice 10-22 to Develop More Robust Due Diligence of Private Placement Offerings](https://blog.factright.com/finra-regulatory-notice-23-08) [Not All Units Are Created Equal in Broker-Dealer and RIA-Distributed Investment Programs](https://blog.factright.com/not-all-units-created-equal) Filed Under: [Due Diligence](https://blog.factright.com/topic/due-diligence) ### Get Blog Notifications ### categories - [Due Diligence (85)](https://blog.factright.com/topic/due-diligence) - [Best Business Practices (39)](https://blog.factright.com/topic/best-business-practices) - [Alternative Investments (32)](https://blog.factright.com/topic/alternative-investments) - [Real Estate (29)](https://blog.factright.com/topic/real-estate) - [About FactRight (27)](https://blog.factright.com/topic/about-factright) - [REITs (27)](https://blog.factright.com/topic/reits) - [Best Practices (24)](https://blog.factright.com/topic/best-practices) ### Archives - [April 2026 (1)](https://blog.factright.com/archive/2026/04) - [March 2026 (1)](https://blog.factright.com/archive/2026/03) - [January 2026 (1)](https://blog.factright.com/archive/2026/01) - [September 2025 (1)](https://blog.factright.com/archive/2025/09) - [March 2025 (1)](https://blog.factright.com/archive/2025/03) - [October 2024 (1)](https://blog.factright.com/archive/2024/10) - [May 2024 (1)](https://blog.factright.com/archive/2024/05) - [March 2024 (1)](https://blog.factright.com/archive/2024/03) - [November 2023 (1)](https://blog.factright.com/archive/2023/11) - [September 2023 (1)](https://blog.factright.com/archive/2023/09) - [August 2023 (1)](https://blog.factright.com/archive/2023/08) - [June 2023 (2)](https://blog.factright.com/archive/2023/06) - [March 2023 (1)](https://blog.factright.com/archive/2023/03) - [February 2023 (1)](https://blog.factright.com/archive/2023/02) - [January 2023 (1)](https://blog.factright.com/archive/2023/01) - [December 2022 (1)](https://blog.factright.com/archive/2022/12) - [November 2022 (1)](https://blog.factright.com/archive/2022/11) - [October 2022 (1)](https://blog.factright.com/archive/2022/10) - [September 2022 (1)](https://blog.factright.com/archive/2022/09) - [August 2022 (1)](https://blog.factright.com/archive/2022/08) - [July 2022 (2)](https://blog.factright.com/archive/2022/07) - [June 2022 (1)](https://blog.factright.com/archive/2022/06) - [May 2022 (1)](https://blog.factright.com/archive/2022/05) - [April 2022 (2)](https://blog.factright.com/archive/2022/04) - [March 2022 (2)](https://blog.factright.com/archive/2022/03) - [February 2022 (2)](https://blog.factright.com/archive/2022/02) - [December 2021 (2)](https://blog.factright.com/archive/2021/12) - [November 2021 (1)](https://blog.factright.com/archive/2021/11) - [October 2021 (1)](https://blog.factright.com/archive/2021/10) - [September 2021 (1)](https://blog.factright.com/archive/2021/09) #### Contact FactRight, LLC 7500 Flying Cloud Drive, Suite 755 Eden Prairie, MN 55344 Call Today: (612) 284-6150 [http://www.factright.com/](http://www.factright.com/)[info@factright.com](mailto:info@factright.com%20target=)   #### FactRight Report Center Independent risk assessment and third party due diligence reports. **[Log In >](http://www.factrightreports.com/Account/Login)** #### Looking for Something? - [Facebook](https://www.facebook.com/FactRightLLC/) - [Twitter](https://twitter.com/factright) - [Linkedin](http://www.linkedin.com/company/395017?trk=tyah) - [Phone](tel:866-357-7779) Copyright © 2019 · [FactRight, LLC](http://factright.suiportal.com/) · [DISCLAIMER](http://www.factright.com/disclaimer/)