Hypersensitivity to fraud in the post-Madoff investing world means due diligence uber alles. It’s nice to find a partner or third-party vendor on which an advisor can rely to flag questionable behavior before it turns into something more. It could be an outside company, a broker-dealer’s compliance department, or the advisor’s own internal review.
But how about combining all three? Redundant, yes, but like safety mechanisms on an airplane, it’s probably something with which few investors would argue.
William (Bill) Bestgen, ChFC, AIF, AEP, of Bay Financial Associates in Waltham, Mass. has just that: a Commonwealth Financial Network rep who takes full advantage of the firm’s association with Chicago-based Envestnet to screen SMA managers before subjecting it to his own rigorous due diligence process.
“I was just speaking with the folks at Envestnet, and what they said tracks with what I’ve been seeing,” Bestgen says. “The hiring of third-party SMA screeners by broker-dealers to do the legwork is the wave of the future. If something is going wrong, they’re off the platform almost immediately.”
Not that Commonwealth simply accepts Envestnet’s recommendations as gospel truth. As Bestgen notes, the broker-dealer will accept a list of quality SMA managers from the firm and subject it to its own internal analysts, who then pare the list even further.