Quick Guide to Assembling an Alternative Investment Due Diligence Team

Posted on June 14, 2014

Avoid Possible Future Financial Calamity and Form Your Due Diligence Alternative Investment (AI) Team

An alternative investment due diligence team can mean the difference between investment success and financial disaster, so it’s essential to assemble a qualified, dedicated team (your AI-Team) that will work for you to determine whether a potential investment is in your best interest. An alternative investment due diligence team can help save you from investment disaster, such as Ponzi schemes and other investment disasters. There are many Bernie Madoff-types out there, hungry to find new victims.

It’s always smarter to spend a few extra dollars up front to make sure an investment is legitimate and done correctly than to find out later that you’ve done something wrong or you’ve been swindled. In short, when it comes to investment, an ounce of prevention can be worth a pound of cure and then some. Assembling an alternative investment due diligence team is easy if you follow this guide.

First, it’s important to understand precisely what due diligence means. So, what is due diligence relative to the world of investing? Simply stated, due diligence is the process of thorough, careful investigation into a potential investment. Through the due diligence, you should uncover any and all risks, along with potential benefits, which can then be weighed so you and your team can make an informed decision on whether a particular investment opportunity is right for you and your financial situation.

Many investors erroneously believe that their IRA custodian tends to due diligence investigations, but this is not necessarily true. They are just one member of your alternative investment due diligence team. An Internal Revenue Service requirement, an IRA custodian is essentially a record keeper for your IRA account; they’re also responsible for tending to all of the IRS reporting for your IRA account. While it’s important to understand what an IRA custodian does, it’s also important to understand what is beyond their scope of responsibilities. When you are self directed, the IRA custodian is not required to perform any research on potential investments. First and foremost, the responsibility for investigating and researching investments lies with you, the account holder. It’s your responsibility to develop your due diligence team.

Who To Consider Placing on Your AI-Team

An alternative investment due diligence team is essential, especially for self-directed IRAs. So, where do you begin? A due diligence team typically involves the following individuals or entities.

Your IRA Custodian:

In order to invest in alternative assets, you need establish a self directed IRA with alternative IRA custodian and standard arrangement just won’t do. An IRA custodian can provide you with valuable information on your IRA account, They can also be a wealth of information to assisting you in knowing which possible alternative investment options are prohibited and which are not. That’s precisely how Sunwest Trust can assist you, as we serve as a trusted IRA custodian for thousands of clients nationwide. Sunwest Trust can act as your IRA custodian. You can either transfer an existing IRA or rollover a 401k to a self directed IRA by visiting the link or calling our office for more information.

You, the IRA account holder:

When you are self directed, you play a central role in your success because after all you are self directed. The first thing you should consider when you find an alternative investment that you would like to invest in is to gather information for both you and the rest of your AI-Team. When you’re considering an opportunity, take some time to perform some research.

The Internet is an easy source of valuable information. If you are investing in a business or a limited partnership, then learn about the company. Find out how long have they been in business. Find out if they a member of the Better Business Bureau? If so, are they in good standing? Check out and find online reviews. Talk to people involved in the investment and use your best judgment. If it sounds too good to be true, it probably is… If you investing in a security, then find out if the company is licensed to sell securities with their respective state. This is a good starting point for your due diligence. Now to the rest of your AI-team.

CPA or Tax Professional:

Always consult a CPA or another tax professional who can provide you with information on tax implications and to ensure that the investment doesn’t violate any prohibited transaction rules. In fact, a knowledgeable tax professional can provide you with helpful information on IRS’ rules concerning disqualified parties and self-dealing, so you can avoid any potentially problematic investments.

An Attorney:

Always ask your attorney to review any and all documents before you sign! This is true in the investment world and beyond. In the case of your investments, a qualified attorney can spot any potentially problematic language in a contract that can be detrimental to your investment.

Fee-Based Financial Planner:

A financial planner can be a valuable team member, but it’s important to select a fee-based financial planner who does not make any sort of commission. The fee-based structure ensures your financial planner is objective, as there is no incentive for them to recommend a certain course of action. The financial planner can provide recommendations on how the investment works with your short-term and long-term financial plan. We recommend consulting the National Association of Personal Financial Advisors if you’re seeking a qualified professional. Visit NAPFA.org.

Assembling a Due Diligence AI-Team for Real Estate Investments

Real Estate Agent:

In addition, if your potential investment involves real estate, it’s wise to consult a realtor who specializes in investment properties. They can be a helpful ally, who can guide you through the process.

Title Company:

In the case of real estate investments, you can also benefit from consulting with a title company. Title insurance will provide you with peace of mind, so you won’t need to worry about any unexpected financial dings due to the discovery of lien against the property.

Establishing a qualified alternative investment due diligence team will go a long way toward ensuring you make a wise investment that’s in line with your financial situation and your plans for the future. At Sunwest Trust, we are experienced IRA custodians and are confident we can be a valued member of your alternative IRA investment due diligence team. We invite you to learn more about the role of IRA custodians and how we can assist! Contact Sunwest Trust today to learn more!

About 

I began working for Sunwest Trust in January of 2007, which happened to be the same month that I got married, moved to Albuquerque and graduated from college. I have degrees from both South Plains College and Texas Tech University. In college, I interned for the Lubbock Avalanche-Journal. I wrote for the Sports and Entertainment sections of the newspaper. Transitioning into a career in business came naturally to me, probably because I have been around this business for my entire life. I can remember being very young and running all around my father’s office building when he first started this business over 20 years ago.My wife, Rebecca, is originally from Dallas, TX, but has adapted very well to life in the New Mexican desert. We live with our two dogs; Boxers named Sawyer and Penny. Rebecca and I spend much of our time training for marathons and traveling as much as we can. I also love to play soccer and snowboard in my free time. Here is a short video on how I spend my time away from the office.

My google plus account is: https://plus.google.com/113705331820766868239/about