Due Diligence on Due Diligence

Poor due diligence allowed thousands of low-quality real estate limited partnerships onto the market, and this continues to be a principal industry problem. Investors who became involved in unfavorable partnerships are filing lawsuits and are winning. Planners should judge their brokers'-dealer...

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Bibliographic Details
Published in:Journal of financial planning (Denver, Colo.) Colo.), 1990-04, Vol.3 (2), p.78
Main Author: Miller, Scott G
Format: Article
Language:English
Subjects:
Due diligence
Financial planners
Internal rate of return
Limited partnerships
Litigation
Portfolio investments
Real estate syndication
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Summary:Poor due diligence allowed thousands of low-quality real estate limited partnerships onto the market, and this continues to be a principal industry problem. Investors who became involved in unfavorable partnerships are filing lawsuits and are winning. Planners should judge their brokers'-dealers' due diligence by: 1. research, 2. analysis, 3. staff, and 4. reports. Research ensures the discovery of material facts or assumptions that may not be in the offering materials. Reports should organize research findings into meaningful conclusions. Planners should make sure that honest research is the policy of the broker's due-diligence staff. The quality of the due diligence report is the proof of staff competence and its level of performance. When investments go wrong, the ex-client and an expert witness will claim that the planner did not perform due diligence. Therefore, the planner should be sure that due diligence is complete and document it. If the planner is sued, clients' comments and understandings of the investment that are written and recorded will be invaluable.
ISSN:1040-3981