Effective Due Diligence: Evaluating an Investment Data Distribution Partner

Honestly, this piece could easily apply to any outsourcing relationship an investment manager might find itself contemplating; after all, whenever an investment manager decides to outsource a part of their business function, performing effective due diligence is key.

The whole point of outsourcing is to free up internal resources that have more valuable application elsewhere in the business.

In our case, we’re talking automated investment data distribution, and the return on investment that are inherent in the practice.

So for example, if a marketing or client service associate is handling the firm’s investment data management & database distribution every quarter, those are days and weeks where client service isn’t getting their full attention, or the execution of the firm’s marketing strategy is on hold.

Or, just as problematic, the quarterly data management is simply another item in their inbox, competing for their attention on a daily basis.


But if the investment data management and distribution partner isn’t consistently reliable, now you have the worst of both worlds: a budget line-item AND distracted, overworked team.


So, if a firm does choose to outsource their data management and distribution, here are a few things to ask when performing due diligence. And these apply equally to firms new to outsourcing or to those looking to find a new partner that’s more reliable and responsive:

  1. Transparency


    There’s a lot to unpack here because “transparency” might mean different things to different people, but you know it when you see it: Is it easy to find good, succinct, and persuasive information about what they do & how they do it?

    For example, do they maintain a professional website that reassures prospects, at a bare minimum, the firm gets the importance of that side of the business?

    Is information about products and solutions easy to find? Is there great ancillary content, a helpful demeanor? Are they responsive to inquiries? Do they have any conflicts of interest?

    In short, can you actually LEARN something meaningful about their products and services, as well as how they go about their business? If not, that doesn’t necessarily mean they are hiding something – it just means that their default position isn’t a client-focused one.

  2. Rock-solid references


    Every firm that does good work should have no shortage of clients willing to rave about their service. Some questions to ask include:

    ~ What was the timeline from contracts to launch?

    ~ How responsive were they, overall?

    ~ Did they adapt the solution to your needs, or did you have to adapt to theirs?

    ~ Did you ever feel “on your own” at any point during the relationship?

    ~ When problems did crop up, were they isolated issues or more systemic in nature? (In other words, did they exaggerate the capabilities & limitations of the solution?)

    ~ Knowing what you know now, would you have paid more for their solution?

    ~ How valuable has the product or service become to your business?<

    ~ In the end do you feel like they under-promised and over-delivered, or vice-versa?

  3. A clear willingness to tailor their solution to your specific needs


    In our example, our Data Vault is constantly evolving, thanks to input, suggestions, and asks from our clients. We don’t believe we have a monopoly on good ideas, so when our clients come to us with a request or a suggested new functionality to the Vault, we eagerly work to incorporate those ideas in order to keep our products on the leading edge of the industry. And we don’t charge for doing so.

  4. What’s the nature of the solution you are exploring?


    Are you improving or simply outsourcing? What we mean, for firms currently managing their data in house, is: are you actually automating your data management or simply hiring a partner to take over your manual, cut-n-paste approach?

    In either case, more internal resources do become available, but only one solution - automation - is an improvement, if accuracy, efficiency, and reliability are a firm’s ultimate goals.

In the end…


Value-added due diligence is entirely a function of asking good questions and knowing what answers you want in return. Unquestionably, managers will learn the most about a potential vendor by meeting with their existing clients. If the vendor’s positioning is substantiated by their clients, that’s a good indication the vendor is worth exploring further, all else being equal.

Thoughtful due diligence will save an investment manager time, money, and ultimately heartache if done properly.