What with the investment necessary to stay in the good graces of the regulators, and keep up with the technology gods, Lou Stanasolovich worries about the viability of the smaller advisory firms in the future: “I know what we spend in compliance a year,” he says. And while Legend Financial hasn’t been audited since 2001, “it’s still so much work to get in compliance, then stay there with things like e-mail retention and documentation.” In the end, “I don’t see how a one-person or two-person shop can even come close to doing it right. I’m afraid most of them are not doing it right.
“The only way you can get around a lot of it is to completely outsource your investment management process,” he argues. There’s another key area where he thinks the smaller shop is at a disadvantage: staying current on technology. Legend has a part-time information specialist who works three days a week for the firm; a staff IT coordinator who “spends about a third of her time” on keeping the tech tools current, along with an intern and an assistant advisor who has “tremendous experience in working on programs and getting them to talk to each other.” In fact, he says Legend spends so much time on technology, that “You need some size to afford that. I mean, a Bloomberg terminal costs $20-something thousand dollars!”