If you don’t fully understand a product, don’t sell it.

Product risk is one of the major risks in the industry, just think Portus, Norshield and ABCP.

Though certain investment products appear safe, they might have complex structures, layers of built-in fees and uncertain risks. So don’t just read the marketing material.

Instead, go for the prospectus, offering memorandum or information statement as well.

There are also things to consider when pitching any investment product, such as track record of the principals, total assets under management, reputations of the custodian and auditor, independent valuation, liquidity and key person risk.

With any structured or tax-efficient product, take a careful look at underlying investments. Lawsuits and regulatory investigations can be minimized by thorough product due diligence.

Originally published in Advisor's Edge