Advisers should always kick the tires and look under the hood of any software they buy for their practice.
Unfortunately, many don't.
Lou Stanasolovich, president of Legend Financial Advisors Inc. of Pittsburgh, learned this lesson the hard way three years ago when he found himself embroiled in a messy lawsuit with a database vendor that didn't make good on its promises. Had he taken a closer look at the vendor's project history and staffing, he might have steered clear of the vendor altogether, he said.
“It was just a mess,” Mr. Stanasolovich, whose firm manages $350 million in assets, said of the legal battle. “We realized after that that a firm of our size should only be dealing with established, known vendors.”
Indeed, Dan Skiles, executive vice president of Shareholder Services Group Inc. in San Diego, likens a significant investment in technology to putting money down on a big home-remodeling job.
“First of all, I wouldn't do anything without having spoken to some of their other customers,” he said. “Second, you've got to be very careful with this contractually. Pay them as you go, and have specific obligations they have to fill within a set time frame. Always make the last check you write them the biggest one, and only once you are assured things are turning out the way you expected and agreed to.”
Mr. Skiles, who until recently served as vice president of technology at Schwab Institutional, has helped many advisers evaluate software purchases for their practices, he said.
LAWSUIT
Failing to do the proper research can cost an adviser both time and money.
Just ask Jon Randolph Green, owner of Encompass Advisors, a fee-only registered-investment-advisory firm in Brevard, N.C., that has $21 million in assets.
In November 2006, he signed a contract with Unapen Inc. of Wallingford, Conn., for a portfolio performance-reporting system combined with customer relationship management software called ClientLogix.
“After several discussions, a canned demo and lots of promises, I was sold — I thought this software would be a great way for me to closely monitor the performance of my clients' portfolios on a daily basis,” Mr. Green said.
Three years and $41,000 later, he is still waiting for the working software, he said.
In May, he filed a lawsuit against Unapen, alleging fraud, breach of contract and a violation of the Unfair Trade Practices Acts of both Connecticut and North Carolina.
Unapen's attorney, Mario Com-etti of Tibbetts Keating & Butler LLC, said Thursday that Unapen stands by its products and services, and has filed a motion seeking dismissal of the case as without merit.
One way to avoid potential problems is to maintain meticulous documentation of any communication with software vendors. Legend Financial Advisors even goes so far as to record conference calls with its vendors, telling them upfront about it and offering to provide a file of the recording.
“Nobody has any problem with it, it keeps everybody honest and prevents people puffing up what they can do,” Mr. Stanasolovich said.
While that's good advice, it doesn't replace the benefits of sticking with vendors that are reputable, and doing a lot of due diligence, said Naomi Scrivener, principal of Back Office Solutions LLC, a Colleyville, Texas, firm that provides financial-planning support services to advisers.
Asking the Financial Planning Association and the National Association of Personal Financial Advisors to query their members about a particular vendor may also be helpful, she said.
“You need to not only thoroughly grill the vendors but find examples ahead of time of someone who likes what they produce and someone who doesn't, and delve into the why of both,” Ms. Scrivener said.
It's also good to negotiate a trial run of the software and services before it is purchased, she said.
“An adviser should never have to purchase something or pay a lot of money to see the mechanics of a package or service,” she said.
E-mail Davis D. Janowski at [email protected].
