Seventy-six percent of advisors say they are not confident that they possess the skills to fully vet alternative investments. 54% percent say they do not have a “standard” list of documentation that they collect from alternative investment managers before investing, and  63% say they have no formally documented due diligence process, according to a suevey this week by Advisor Products.

With that bleak data as a backdrop, along with the guilty plea entered yesterday by the infamous Bernard Madoff, Jason Sharfman of Corgentum Consulting LLC., which specializes in due diligence of alternative investments, told attendees at this week's Financial Crisis Webinar that lax RIAs could face the risk of liability and are vulnerable to lawsuits by clients unless they tighten alternative investment due diligence.

The webinar also featured a discussion about Schwab Institutional's effort to move all alternative investments off its custodial platform. Anthony Carl of Sterling Trust Company and Tom Anderson, CEO of Pensco Trust Company, also participated in the discussion. Carl and Anderson, who represent two custodians to which Schwab Institutional is referring advisors as they move off the Schwab custody platform, spoke about how using a trusted custodian can help mitigate the risks of alternative investments.

Download Sharfman's presentation slides     Download Anderson’s presentation slides

For thoughtful coverage of the Schwab Alternative Investment custody issue, read Andrew Gluck’s blog post.

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Has your firm developed a successful due diligence process? Do you have any recommendations that you would like to share? If so, please comment.

On March 20, Jerry Lezynski of SEI Advisor Network presents SEI's 2009 Survival Guide For Financial Advisors. Advisors should attend this session for new ideas about how to grow business during this difficult time. Register now.  Download presentation slides.