“It's all too easy to get distracted by the sizzle and neglect the nitty gritty that really should be happening during the due diligence process.” So says Livonia, MI-based Concorde Holdings, a private financial advising firm comprised of Concorde Investment Services, Concorde Asset Management, and Concorde Insurance Agency. In this exclusive Q&A, GlobeSt.com talks to Concorde's director of research and due diligence officer, Timothy Witt, about what end-of-year steps advisors can be taking now to ensure that they are doing their due diligence—and that they are well-equipped to provide the best products to their clients in 2018.

GlobeSt.com: Walk us through how Concorde approaches the end-of-year review process, and what you think responsible due diligence looks like.

Timothy Witt: Year-end is a great opportunity for advisors to evaluate (or reevaluate) their businesses and the products they recommend for client portfolios. They should determine if these are the same products they will offer in 2018 or if there are better solutions or strategies on their firm's approved list. Also, product choice should be influenced by an advisor's view of the world. For example, if an advisor believes inflation will pick up, they should focus on products that will outperform in that environment.

We remind advisors not to get too caught up in glossy marketing materials and sales pitches, which often minimize a product's risk or actual performance. An advisor should dive deeper into the investments themselves: the people, the assumptions behind the financial projections, the adherence to the stated strategy, understanding the distribution coverage, etc. It's all too easy to get distracted by the sizzle and neglect the nitty gritty that really should be happening during the due diligence process. There is real value in that process, especially in an increasingly complex regulatory environment, when it's essential that you and your clients fully understand what may be very complex products.

GlobeSt.com: So it's about prioritizing substance over style?

Witt: Correct. And it's also about being selective. Ultimately, each product and investment needs to stand on its own. Don't ever assume that, just because it's with a company you frequently work with, that everything they do is great and is a great fit for your client(s). Substance matters in other ways, too. For example, many of the products we offer are real estate related, but I believe that the three most important things in real estate are not the clichéd “location, location, location,” they're “people, people, people.” We want to work with product sponsors whose principals we have found to have integrity, a commitment to putting investors first, positive past performance (although not necessarily perfect, as failure can be a great teacher), and solid financial backing. I spend a lot of time vetting the people I do business with, and I encourage all responsible advisors to do the same. Always associate yourself with the best people.

GlobeSt.com: Is there anything you can share there about your approach?

Witt: I spend a large portion of my time focused on alternative investments. On the alternative side, we generally see three categories of firms (broker-dealers) offering alternatives. First, we have firms that only have a couple of options on their platform—maybe just to be able to say they offer something. At the other end of the spectrum are firms that have seemingly every alterative product out there on their platform. If that's the case, they aren't doing any substantive due diligence, almost by definition because there will inevitably be products that shouldn't be on anyone's platform. In the middle are a small universe of firms, including Concorde, who have several options across major asset classes covered in the alternative space, but are still very selective about what they allow on their platform.

GlobeSt.com: What are some other things that advisors should keep in mind this time of year? What else can they be doing to make sure they and their clients are set up for success going into 2018?

Witt: Making sure that your clients' portfolios are well diversified with allocations to non-correlating assets is critical. That's always a priority, but it's especially important in an environment where many asset classes are sitting at record highs. Diversification should be happening not just across asset classes, but within asset classes, as well. For example, we offer a number of real estate products that enable clients to diversify across asset classes (multifamily, industrial, retail, seniors housing, etc.), geographies, sponsors, and strategies. Based on our view of the real estate cycle, Concorde's platform is focused on projects and sponsors that have active value-creation strategies (rather than buying stabilized assets at peak prices and praying that they go higher). We are seeking products that we believe can produce positive returns in an economic environment less favorable than today's.

GlobeSt.com: That's interesting. And I suppose it's also a function of the state of the marketplace.

No doubt. Based on where we are in the economic cycle and given current asset values, the overarching theme of any investment advice I'd give right now is to focus on protecting the downside for clients. Don't just focus on the potential returns, thoughtfully evaluate what can go wrong.

GlobeSt.com: Any final thoughts about what advisors can and should be doing to get ready for next year?

Witt: Aside from the nuts and bolts of due diligence and product reviews, I also think financial advisors would be wise to think about their relationship with their broker-dealer: specifically, whether or not they have the kind of access that allows them to serve their clients' needs. Just as an example, our financial professionals have my cellphone number—and the number of every other senior executive. They can call anytime (and they do!), asking my opinion about a certain product, or looking to get a better understanding of the potential risks and opportunities with a specific investment. That kind of 24/7 access makes this annual review process a lot easier, and it ultimately translates to a better result for clients.