What Small Firms Need to Know About Due Diligence

Factors such as resources, costs, communication, and firm structure and size can impact an advisory firm’s ability to effectively conduct due diligence, according to a panel at FINRA’s 2026 Annual Conference, “Due Diligence Essentials for Private Placements and Public Offerings.” On the panel, Steven Jafarzadeh, a senior director and partner in broker/dealer firm Stonehaven LLC,  said, “Understanding that you have limited resources and using them wisely is incredibly critical here.”

According to Jafarzadeh, the process should support issuers’ capital-raising needs while also protecting investors. Stonehaven’s framework starts with firms setting expectations for issuer clients before an offering is brought to market.

“We’ve developed a cover letter to effectively discuss the elements like timeline, information exchange, access to documentation, [and] coordination of data,” he said.

Establishing those parameters at the outset can help align both parties and reduce friction during the process.

According to Minh Le, the panel’s moderator and FINRA’s senior director of private placement review, “the cover letter is a great approach as far as establishing expectations between the parties.”

However, other experts prioritize different parts of the due diligence process and stressed that there is no one-size-fits-all framework for investigations.

When Cameron Hellewell, general counsel at Orchard Securities LLC, talked about his broker/dealer’s framework, he emphasized that rather than forcing a rigid schedule, firms may need to allow for a more fluid process, while still ensuring all necessary steps are completed.

“The part where we’re maybe a little bit less intense than Steve is the timelines,” Hellewell said. “Things do take time, and it’s probably the largest delay in launching a product and coming out with a new offering.”

Jafarzadeh said documentation is another key area in which smaller firms may fall short, often due to limited staff and competing priorities. To keep up, firms need to maintain procedures tailored to their business models, including clear definitions of red flags, escalation protocols and approval processes.

“If it’s not documented, it’s not done,” said Jafarzadeh, emphasizing that smaller firms must be able to demonstrate what was reviewed, how issues were investigated and who made final decisions.

While smaller firms often view due diligence as costly, Hellewell argued it should ultimately be seen as a differentiator.

“It’s money that you can’t afford not to spend,” Hellewell said.