7 Due Diligence Websites

In the wake of yet another finance industry disaster, I thought I’d share some good online due diligence resources for Kiwis.

In 2012, it’s crazy to not take advantage of the resources available that enable you to run basic background checks, investigate different types of investment models and learn more about personal finance.

Your Favourite Search Engine

The first place to start is by searching for:

  • the name of the investment professional you’re working with
  • the name of their company
  • the name of their investment product
  • the name of their company with “+ scam” added
  • their name with “+ judgment” added

Through spending time with your favourite search engine and a potential investment opportunity you can size up who you’re dealing with. In this day and age, not having a web presence is suspicious in and of itself.

While I’d hesitate to say investment professionals using social media is essential, it’s definitely weird if you can’t find something resembling a secure client login area.

If you can’t log in and see where your money is going, something is wrong. Either the company is stuck with paper records (terrible) or they’re not willing to provide real-time updates on where your money is (really dodgy).

The Companies Office

The New Zealand Companies Office enables you to search for the company name. That will enable you to look at corporate documents like deeds and prospectuses (if they’re registered).

It will also enable you to look at other companies the directors and shareholders are involved with. This can be helpful in identifying potential conflicts of interest. For example, if you are contemplating a property syndicate investment and the current title owner has one of the syndicate arrangers as a director, you’d be well advised to ask whether you’re really entering into an arms-length transaction on a commercial basis.

Another thing to look for is how the shareholdings are structured. If you see arrangements where the same people have 98 shares and 2 shares, it’s likely to be a trust arrangement.

If you’re going to be a counterparty to a transaction where there is a trust involved, it’s going to be difficult to get your money back if it ends up in the trust. Just look at the difficulty BNZ are going to in order to get money from the trusts of convicted fraudsters Skinner and Rowley.

Shark Patrol

This website enables you to search for insolvency events or judgments against companies. Most investment professionals won’t appear anywhere here. But if you’re about to pay an advance fee for a loan that will never be settled I wouldn’t be surprised if your new friend’s name showed up here.

NZ Legal Information Institute

NZLII is a free repository of court judgments – High Court, Court of Appeal and Supreme Court. If you search for the names of the person you’re dealing with and the names of the companies they’ve been involved with you can find some good stuff.

It can require creative search terms and trawling newspaper archives to figure out which case is which, but sometimes you read judgments from 10-15 years ago and wonder – who the hell would do business with this person after that?

Sorted

This free website is a good basic overview of things you really should have down pat before you go anywhere near investing in complicated products.

There are lots of good calculators including a household budget that’s really simple to use. If you’re not budgeting, again, you have no business investing.

Khan Academy 

If you didn’t take a finance paper at university, you’d do well to work through the core finance lecture series on Khan Academy. They’re ~10 minutes each and well worth your time.

If you don’t know how to calculate present value, net present value or how to do a discounted cash flow analysis this is really simple stuff that no investor should be ignorant of.

Investopedia 

It’s a US orientated website, but the amount of good information here is undeniable. You can learn about how bond prices work or plain English explanations of how margin investing works.

If you’re being sold something complicated, look it up here. Then ask yourself – who’s really benefiting from this transaction?

Conclusion

These 7 sites are just the starting point for performing due diligence on prospective investment opportunities. They overlap with financial education because they’re the same thing – the more you learn about the mechanics of different investment opportunities the better equipped you are to avoid making silly mistakes like having all of your wealth tied up with one advisor.

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