Cornerstone Asset Management compliance officer and sustainability lead Rebecca Kowalski on why due diligence starts with people, and how the firm has integrated due diligence as part of their aims on sustainable investing.

Like many advice firms, at Cornerstone Asset Management our approach to due diligence is bespoke to our own nuances and processes.

In setting out how we tackle due diligence, I've thought about how to make this interesting because, to be fair, I’m a little done with financial services-speak at the moment, especially all the abbreviated jargon – think DD, ESG, CRP.

That all said, due diligence is of course hugely important.

With my compliance officer hat on, I accept the importance of proper research and of cutting through the 'sales wash'.

But due diligence tends to focus on 'stuff' over experience, and on things over people.

In my view, that approach does not the best life, nor best business model, make.

It’s the people and the experience that matter to me, and it's those two factors that I think are at the heart of our business.

So, how is this reflected in our due diligence approach?

People and due diligence

Firstly, Cornerstone has always tasked its people to focus on the service elements we excel at, and to outsource the other parts to external experts. We feel this results in a better client experience.

We've done this for many years for our investment solutions and also have support from an excellent outsourced paraplanner to carry out platform due diligence.

We also called on an investment research specialist to create a shortlist for a discretionary fund manager (DFM) to partner with for our sustainable investment offering.

Both of these experts were able to tell us which platforms and DFMs offered all the 'stuff' we needed as a prerequisite.

For the platform, this could be summarised as a wide range of product wrappers and investment types, competitive costs and good client functionality. 

For the DFM, we wanted the ability to work to our risk mandates and benchmarks, and the firm to provide the reporting we need and to have a decent track record.

But meeting these requirements only got candidates to the shortlist.  To make the final cut and to stay in place, we then had a good think about the experience and the people.

Collaboration and due diligence

There is plenty of due diligence carried out in-house too.

As with many aspects of compliance, this is guided by a risk-based approach.  

Our internal due diligence process is designed to maximise the various human skills and personalities we have within the business. I like to think there is a certain science to that.

The process tends to be a collaborative effort between three of the teams I have a foot in – compliance, paraplanning and the investment committee (yes, that can require quite a bit of hopping about!).  

On compliance, I lead on how to convert policy into action via a process that works for all stakeholders, involving some forms and some box-ticking but not too much.

With paraplanning, there is a lot detailed analysis and the asking of lots of questions.

For the more complex and higher risk solutions we consider, we call in the investment committee heavyweights to challenge us and to counteract those of us who at times get a little over-positive about things. 

It's very much about combining a quantitative and a qualitative approach.

Sustainability and due diligence

The third way in which our due dilgence approach embodies people and practice, as well as ticking off points on paper, is the importance we place on relationships and common ground.

A perfect example of this was selecting the DFM for our Responsible Futures portfolios back in 2017/18.

We gave fair consideration to everyone on the shortlist. But ultimately, the decision was based on the fact our selected managers were as passionate and committed to sustainability as we are.

They share our vision of the opportunities to generate investment growth, deliver better long-term intergenerational client outcomes and do the right thing for the world and society.  

There was asset allocation and investment selection expertise galore, a good dose of original thematic thinking, the flair to communicate that well,  and (for me at least) the fact that the lead manager kept bees and goats in his garden.

(Granted, that wasn’t on the list of requirement, but it helped sway my vote.)

What's important to us 

While not all due diligence processes generate such a warm and fuzzy feeling, I think it's appropriate to put a lot of focus on relationships and the ongoing experience of working with a platform, provider or investment manager as a trusted partner. 

Do they look after the needs of both us and our clients?

Do they deliver, listen and react? Do we feel like we are important to them? 

After phoning with questions and requests, do we feel they have the willingness and the ability to respond – in good time and with acceptable responses? 

Before I joined Cornerstone, I was a paraplanner at two different firms who both used a well-known platform. They relied on it for the same tax wrappers, similar types of investment and universal client needs.

However, the two experiences could not have been more different.

For the firm who used only that platform and also happened to be one if its largest customers, the relationship was excellent, with an efficient service that went beyond the call of duty. 

In contrast for the other IFA, who placed a smaller amount of funds and a lower proportion of their clients on the platform, the difference was obvious. I guess you can’t miss something you never had.

Due diligence can be seen as quite a black and white issue, and I’ve probably infused it with a few other colours too.

While I've tried to put my personal spin on due diligence here, as a process due diligence is actually there to counteract that personal bias.

It adds some science to the emotional reaction.

It provides an evidence-based approach to guard against individual allegiances and preferences, and makes sure everything is fair, considered and consistent.

What more could a compliance officer want?

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