What is Due Diligence?

Due diligence is the responsibility of the investor and broker to research all pertinent information about the individual's, investments, and companies involved prior to doing business.

Due diligence is a responsibility and also a legal defense. If a fiduciary person or company is accused of negligent or criminal behavior, it may be a good defense to show a document trail of research about the people, companies, and investments involved in a transaction.

Exercising due diligence is a rule of conduct for many professions but it especially applies to financial matters. The Securities and Exchange Commission (SEC) first used the term in the Securities Act of 1933, Section 11, and it set a standard for responsible conduct in the industry.