Programme Due Diligence: Questions That Need Evidence

Identify the proposal and the parties

Begin by identifying what is actually proposed: an individually managed account, an interest in a pooled vehicle, a research subscription or another arrangement. These structures create different relationships and documents. Record the legal names of the decision maker, intermediary, custodian where applicable and contracting entity. A brand name or attractive website does not establish that all these roles belong to the same legal organisation.

This guide is a framework for examining a third-party proposal, not a description of a programme operated by this publication. It does not assess anyone's suitability or give a jurisdiction-specific legal conclusion. Its purpose is to turn broad assurances into questions with identifiable evidence. When the structure itself remains unclear, resolve that uncertainty before interpreting performance material or discussing possible funding arrangements.

Verify identity through independent records

NFA's due-diligence advisory describes checking registration, background and disciplinary information rather than relying solely on material supplied by a promoter. Its BASIC resource supports searches for derivatives-industry firms, individuals and pools. For a relevant US context, match the legal name and identifying information carefully. Similar names and unrelated entities should not be treated as equivalent merely because a search produces a familiar-looking result.

The applicability of registration, exemptions and disclosures depends on the activity, entity and jurisdiction. A database result is not an investment recommendation, and the absence of a simple search match is not by itself a complete legal finding. Record the date of the check, the identity matched and unresolved discrepancies. Consult the appropriate official source or qualified adviser when the status or regulatory context requires interpretation.

Classify every performance exhibit

Ask whether each exhibit represents actual account activity, a composite, a hypothetical simulation or an illustrative calculation. Request the observation period, valuation frequency, fee treatment and inclusion rules. A plot without these definitions cannot answer basic comparability questions. Nor does a reproducible hypothetical calculation become an actual record simply because its formula is transparent or its source data came from an official publisher.

Keep the evidence boundary explicit. A directional comparison without investment accounting cannot establish an account return, drawdown or capacity claim. If an actual record is provided, ask what independent statements or verification support it and whether the named entity and method match the current proposal. Unexplained changes in mandate, sizing or reporting population are questions to resolve, not details to average away.

Translate fee language into a worked ledger

NFA's Investor Best Practices encourages understanding the charges and management arrangements before opening an account. A useful review turns the written fee basis into arithmetic. Suppose a wholly hypothetical proposal charges 1% annually on a constant $200,000 billing base, accrued in twelve equal monthly instalments. That produces $2,000 annually, or approximately $166.67 per month before any rounding reconciliation. This is not an observed or offered fee schedule.

Add a fictional $35 monthly administration charge: $420 annually. The combined specified annual charges are $2,420, or 1.21% of the assumed constant billing base, excluding trading and any other charges. If the actual agreement uses a changing base, different accrual conventions or additional contingent fees, this calculation no longer describes it. Ask for those definitions rather than assuming a headline percentage includes every expense.

Map custody and decision authority

Ask who can place orders, change risk settings, move assets and authorise withdrawals. These permissions are different. Written authority to make investment decisions should not be assumed to describe every cash-transfer permission. Identify where statements originate and how balances are reconciled against an independent source. A clear division of responsibilities is useful only when the documents and operational process support it.

Also ask how errors, unavailable data and disputed instructions are handled. Who can suspend activity, who receives notices and what evidence is retained? These are practical questions, not requests for proprietary source code. A proposal can protect legitimate intellectual property while still explaining authority, escalation and reconciliation. When the answer depends on a particular agreement, obtain that agreement rather than relying on a verbal summary.

Examine liquidity and changes to the mandate

Read withdrawal terms, notice periods, valuation arrangements and any restrictions that apply to the specific structure. Do not assume that liquid underlying markets imply immediate access to every investment vehicle. Cash access can depend on contractual and operational conditions distinct from market liquidity. Clarify what happens to open exposure, accrued charges and pending obligations when a withdrawal or termination is requested.

A second set of questions concerns change control. Can the market universe, leverage limits or decision process change, and how would that be communicated? What would count as a materially different approach from the one described in the evidence? A historical exhibit may remain authentic while becoming less relevant to a revised mandate. Due diligence should therefore compare identities and policies, not merely collect documents once.

Keep an evidence register, not a scorecard of impressions

For each material claim, record the question, supporting document, date, responsible party and remaining uncertainty. Distinguish verified facts from statements supplied by the proposer and from assumptions made by the reviewer. Avoid turning an incomplete checklist into a numerical rating that implies more certainty than the evidence supports. A small number of unresolved custody or authority questions can matter more than many polished explanations.

NFA's advisory also warns about pressure to act quickly and evasive answers. These are reasons to slow the process and investigate, not grounds for inventing a conclusion about a specific firm. The useful endpoint is a clear, dated account of what has and has not been established. Any decision to participate requires the actual documents, current relevant rules and consideration of the person's own circumstances.

Source record

1. NFA: Investor Advisory on Conducting Due Diligence
2. NFA: BASIC Background Search
3. NFA: Investor Best Practices