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What is Due Diligence?

What is Due Diligence?

March 02, 2023

It’s not the most glamorous topic, but due diligence is a crucial part of financial planning. Many people associate it with mergers, acquisitions and real estate transactions, but not with their investment decisions. So, what is it? And why is it important? Let’s dive into a crash course on due diligence.


What is it?

Due diligence is the process of gathering relevant information, such as financial records and legal documents, and analyzing them to evaluate potential risks and benefits associated with a certain decision. It is conducting a thorough review of potential investments before finalizing them. The goal of due diligence is to look at all the information to identify and address any issues or risks prior to making a decision.


Why does it matter?

Due diligence is necessary to determine if a decision is a good decision through analysis and testing. It ensures we do our fiduciary duty and don’t just use the “flavor of the month” when it comes to investments. Large financial institutions don't usually offer a variety of mutual fund or Exchange-Traded Fund (ETF) options. As an independent financial firm, we use our process to pick and choose which investments to utilize from a variety of investment options and look closely at what different investments could work well together.


What do investors need to know?

Not all advisors have a due diligence process. A lot of advisors rely on their broker-dealer or manager to tell them what investments to use. At Zephyrus Financial Services, we have spent the last 10 years developing our process. We’ve refined our process so much that we actually started creating models for other financial advisors because they did not have the time or resources.


Using a Turnkey Asset Management Program (TAMP) is growing in popularity. In that respect, we are a TAMP to clients and other financial advisors. Since we were using the same process for our clients, it was easy for us to repeat the process for another advisor. There are currently seven financial advisors using our models. We began offering this service to other financial advisors in 2022 and are excited to expand this service as we grow in 2023. 


What should investors be asking?

Every investor should ask what their financial advisor does for due diligence. Can your financial advisor answer all your questions concerning the investments inside their portfolio? If they use someone else to conduct due diligence, do they have access to that person or organization to see their process or ask questions? Do they even know who is conducting the due diligence? How transparent is that process?


What is due diligence like at Zephyrus?

We conduct all our due diligence in-house. We have a documented process, written due diligence policy and leverage industry tools and experts to verify our findings. We have over a decade of experience conducting due diligence and using industry-leading analytical systems.


Since we are independent and our broker-dealer is so large, we have access to almost every mutual fund or ETF. We screen all mutual funds and ETFs for ones we think will work well together within our portfolio. We can then test various combinations through our two sets of analytical systems. Once we have the final product, we test again looking for potential risks through historical time periods. We also leverage portfolio analysis teams within some of the largest investment companies in the world.


We identify and navigate potential risks and look for a positive upside/downside ratio. If an account captures more upswing in the investments than downswing versus the comparable benchmark, the upside/downside ratio is positive. When you have a positive upside/downside ratio, your odds of beating the benchmark increase over time.


Truthfully, we are so confident in our due diligence process we openly ask clients to stump us with questions concerning our portfolios. We have some very sophisticated clients that rely on that level of expertise. But our expertise is not just for sophisticated clients; it's for anyone who wants their investments truly managed. We do what we do to ensure all clients we are looking out for them and have their best interests in mind and that we are carrying out our fiduciary responsibility.


To learn more about our due diligence process or start planning your financial future, schedule a meeting at Stay connected to us and the latest financial news by following us on Facebook and LinkedIn.