Good examples of this are the collapse Queensland based entities Storm Financial and ABC Learning. Some of the financial problems were highlighted in a Sydney Morning Herald report dated 2 May 2010, - what investor would have any idea that a normal kitchen sink was purchased for $100,000?
So the questions are;
1. How could any investor do the sort of Due Diligence required to ascertain such thing?
2. Would that sort of dealing be exposed in any case?
3. How can the general 'Mum and Dad' investors protect themselves and their limited resources?
Different people use different strategies when planning their investments. For Example;
· Some take no interest in the product itself, but trust in the reputation, experience and personalities of those on the Board or other high profile managers.
· Others peruse the ups and downs of the minutes of each of the companies they choose to invest in and do their best to predict who will perform well.
· Many choose to stick to the 'blue chip' substantial companies, those 'too big to fail', or those (like the banks) that are likely to be supported by the Government.
· Some trade day-to-day, hoping to mount up a small increment in profit.
However, many Mum and Dad investors rely on so-called 'financial advisers' but unfortunately this industry also has its charlatans, many who have come under recent scrutiny. Under new Government regulations that are being muted, many financial planners will lose their capacity to earn the huge commissions through investment sales, and certainly all will be obliged to reveal more about themselves and their product when selling to Mrs and Mr Average Investor.
Whether this is a good thing remains to be seen, as the financial world is based on commissions of one sort or another. Even bank employees receive bonus payments for increased sales. In other words, when investments fall over we can not entirely blame financial planners because they have a strong invested interest in seeing such institutions succeed. And no one strategy suits everyone – it is up to the individual to do the best they can to protect their hard-earned money.
In this article, Mark Tronson asks 3 questions;
1. What exactly does Due Diligence involve?
2. What extent can any one person engage in it as a means of 'discovery' about the institutions they are investing in?
3. Can anyone can be sure that they are finding out everything that is pertinent to their investment?
Q: What is Due Diligence?
A: It is ensuring what the Prospectus (that is supplied with every financial product, by law) says is a true and accurate reflection of what the institution actually does.
Q: What is the Extent of the Due Diligence?
A: This is limited for Mr and Mrs Average. Unless you engage an expensive, highly skilled forensic accountant, you are limited in what you can find out from published information.
Q: Can anyone exhaust the Due Diligence?
A: You need to compromise, according to your interest and needs. There is a balance required as you could investigate a financial opportunity for ever and never get around to making an investment!
"Due Diligence is easier said than done. A good example of practical Due Diligence is when someone purchases a new motor vehicle. The 'investor' has an idea as to the size of vehicle they want and what they can afford. Then they check out the flyers with the technical and safety data, visit the show rooms, take various vehicles for test drives, and then makes a decision," said Tronson.
Likewise, professional employment undertakes Due Diligence for senior and middle management positions. Marriage too has a Due Diligence aspect to it. For decades long engagements were the norm as a form of Due Diligence. This might say something about our society today.
It may surprise many reading this article that those local churches that have a system of 'Calling' Ministers (Baptist, Churches of Christ, Pentecostal …...) or who have some say in which available Minister might come to their Parish (Anglican, Uniting, Salvation Army, Lutheran ….) are also involved in the Due Diligence process and this is not as easy as it might first appear.
There are a host of issues that come up when selecting a Minister / Pastor / Priest. Due Diligence becomes very important so that a square peg does not attempt to fit into a round hole.
Local churches are littered with pastoral appointment disasters where the congregation followed a particular theological view point and the new Minister was at opposite ends of the theological spectrum.
Due Diligence applies to almost everything we are engaged in.