Key takeaways
- Your custodian executes what you choose and does not vet who is behind it — that work is yours.
- It is more checkable than most investors assume: verify the people, the paper, the track record and the money path.
- Verify each independently. Documents supplied by the sponsor are the claim, not the confirmation.
Every self-directed investment has a sponsor — the fund manager, the syndicator, the borrower, the operator. When alternative investments fail, the cause is more often the sponsor than the asset class. Before directing a dollar, run the checks.
Verify the people
Search the principals in regulator databases — securities regulators’ public systems cover registered firms, individuals, and disciplinary history, and state records cover the entities. A sponsor who belongs in none of them should be able to explain exactly why. Litigation and bankruptcy searches on the principals’ names are cheap and revealing.
Verify the deal’s paper
Legitimate offerings have coherent documents: an offering memorandum or note agreement, organizational documents for the entity you’d own, and financials that add up. Read for the unglamorous parts — fees, conflicts of interest, what happens on default, who controls decisions. A sponsor who resists sending documents before you commit has answered your question.
Verify the track record — independently
Ask for prior deals by name and check them: recorded deeds, completed projects, investors you may contact who aren’t hand-picked references. “Consistent double-digit returns” is a claim; a deed record is a fact.
Verify the money path
Funds should move from your account to a titled investment through documented instructions — never to a principal’s personal account, never by pressure, never “today only.” And remember what custody means: our acceptance of an asset is administrative, not an endorsement — the custodian’s actual role is here, and our fraud-prevention center catalogs the schemes that target self-directed investors specifically.
The rule of thumb
Every check above can be completed in days. Any sponsor whose timeline can’t survive those days is telling you the diligence would not have survived either.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.