Sir Philip Green's Arcadia group was informed that the man he planned to sell BHS to had a history of bankruptcy and had no retail experience, MPs have been told.
Anthony Gutman of Goldman Sachs, who gave "informal" advice to Arcadia, also told a committee of MPs that proposals tabled by a consortium headed by Dominic Chappell to acquire BHS were "lacking in detail".
Mr Gutman said that Goldman Sachs was not paid for what he described as "informal observations" to Arcadia, adding that he informed the group's finance director Paul Budge verbally in December 2014 of his findings, four months before BHS was sold to twice bankrupt Mr Chappell.
Sir Philip sold BHS for £1 to Retail Acquisitions, headed by Mr Chappell, in March 2015. The department store chain went bust last month, leaving a £571 million pension fund black hole and putting 11,000 jobs at risk.
Both men, who will be grilled by MPs of the Business and Pensions select committees, have come under fire - Sir Philip for paying a £400 million dividend to his family from the business and over his management of the pension scheme, and Mr Chappell for sucking management fees out of BHS prior to its collapse.
Mr Gutman added that Goldman Sachs did not advise on the deal in a formal capacity because it was too small.
The MPs were questioning advisers from Goldman Sachs, Nabarro, Deloitte, KPMG, PwC, Eversheds and Linklaters in order to ascertain "who knew what when and what checks were put in place before the sale to Retail Acquisitions".
Arcadia executives were also grilled by MPs, and Mr Budge admitted he was aware of one of Mr Chappell's bankruptcies and was "cautious" in selling BHS to him because of it.
But he defended the sale, saying: "In the four weeks before the deal, some of the heaviest due diligence I've seen was carried out."
He added that Arcadia understood there would be £120 million of funding from Farallon Capital that would be injected into the retailer.
Mr Budge added: "We wanted it to be a thriving business. We thought there was a credible plan, we thought that Dominic Chappell was surrounded by credible people, like Grant Thornton.
"We acted honourably because this business could have gone into administration three years leading up to the sale. Arcadia backed it with £250 million. We wanted them to deliver a credible business plan and we were putting ourselves on the line in trying to make that happen."
Earlier, MPs were told by advisers to BHS' pension trustees that there were "serious concerns" over the cash funding arrangement of the scheme as early as 2012.
Tony Clare, a partner at Deloitte who advised Sir Philip, said that a plan to restructure the BHS pension scheme - known as Project Thor - was put on "pause" - ahead of Christmas in 2014 in the hope that seasonal trading might help turn the business around.