Evolving Technology in a Family Office
The wealth and affairs of ultra high net worths (UHNW) are becoming increasingly complex, and the use of technology in the family office industry will continue to grow. Faster communication, better and more detailed reporting are some of the driving forces. So too are both the non-financial and financial needs of the clients.
One such example is the trend to investing more into alternative investments. This means more complex requirements often outside of the banks’ custody. Twenty years ago investors largely held stocks, bonds and cash; it was easy to report and track with their banks doing much of the heavy lifting. Today, investors are piling into venture capital, private equity, hedge funds and other alternative asset classes. These are far more resource consuming to coordinate, manage and report on.
Family offices play a crucial role in managing these assets, whilst continuing to provide traditional financial and advisory services. For a family office it can sometimes feel like you’re trying to juggle a million different tasks while blindfolded and standing on one foot. That’s where technology comes in. By adopting technology they can enhance their family office efficiency. This can be done by streamlining operations, improving communication and collaboration, and ultimately better serving their clients.
Automation Will Grow
One key area where technology can greatly enhance the efficiency of a family office is in the automation and of administrative tasks. Cloud-based software and artificial intelligence are two such approaches. Cloud-based allows greater remote access, less dependence on a central hub, and leveraging off the providers expertise. AI can be used to efficiently manage documents and perform a variety of tasks that are time-consuming and labour-intensive. For example, AI can be used to extract volumes of cumbersome data from PDFs reports and other unstructured sources. By adopting these technologies, family offices can increase the accuracy and speed of their work. This both creates more value as well as reduce cost.
Technology Improves Communication
In addition to automating administrative tasks, technology can also greatly improve communication and collaboration. Video conferencing, project management software, and virtual meetings allow team members to connect and work together in real-time. This enables two advantages. Firstly, the family office can expand its talent pool and professional network across different physical locations. Secondly, an increase in productivity or efficiency enables family offices to remain flexible and responsive to the needs of their clients. Going are the days of scheduling meetings weeks in advance and trying to coordinate schedules. Today, clients and their family office meet at the drop of a hat (or mouse click, as it were).
Customer Relationship Software
Another important aspect of technology is its role in client servicing. Customer relationship management (CRM) software is now common and used to track client interactions. As family offices increasingly fall under regulatory scrutiny and compliance, the record of these interactions becomes essential.
Portfolio management software is a core tool for family offices that manage their investments in-house. These systems allow the team to manage multiple portfolios including routing orders to the banks, and consolidating across multiple accounts. Financial planning and reporting tools not only assist management but enable personalized advice and recommendations. Through using these tools, family offices can more effectively meet the needs of their clients and strengthen their long-term relationships.
Technology in Complex Financial Reporting
Complex financial reporting is another area where technology can play a crucial role in the operations of a family office. Advanced reporting software can help family offices to better understand and analyze financial data. Often with the same level of detail and sophistication as a bank or hedge fund. Advances in data visualization tools help present information to clients in a clear and concise manner.
Consolidated reporting is particularly important for family offices that manage a wide range of assets and need to provide regular investment performance updates. No more sifting through piles of paperwork, multiple reports, or trying to make sense of complex Excel spreadsheets. Furthermore, clients expect to see their performance real-time on their handheld device, whether from their home, chalet or yacht.
With the right technology, financial reporting becomes a breeze. There are hundreds of software solutions today addressing one or more of these technology stacks. Family offices must choose their providers carefully and avoid the pitfalls in adopting technology.
Challenges of Technology Adoption
While the adoption of technology in enhancing family office efficiency can bring many benefits, it is important to also consider challenges that may arise. One common issue is the cost of implementing and maintaining new technologies, which should not be underestimated. Technology often comes with high implementation costs, fixed contracts, and a recurring fee. Furthermore, this technology is often core to the business, and once embedded difficult to prise apart. Pick the wrong software and you may find it takes months or years to switch unwind.
Is there any price too high for peace of mind and increased efficiency? Management must factor in the non-financial risks of transitioning to new technology. The rapid advancement and choice of solutions can pose a challenge at the personnel level. Typically older professionals may not be as willing in adopting new technology. This applies equally to the head of the family, unless they are younger and tech-savvy. The goal must always be to enhance the value of the service and experience of the client. Too much too fast can make both the team and the family members left confused or alienated. But fear not, even the most tech-challenged among us can learn how to use a new tool with a little bit of patience and practice.
Other factors to consider are the training costs and needs, both for team members and family members. Don’t migrate the technology until you are sure that are able to let go of the old system. Otherwise you end up in the worse position of managing two systems.
Lastly, there is the ever growing issue of data security. Family offices often handle very sensitive financial and personal information that must be protected. This is often a legal and regulatory requirement, as well as reputational. When adopting a new technology ensure that the data is not only stored securely, but is located in an appropriate jurisdiction. On the other hand, by outsourcing the storage of your data a family office can reduce costs and leverage off the technical expertise of the provider.
Summary
It is clear that the role of technology in enhancing family office efficiency is both a growing challenge and opportunity. Family offices must continue to embrace the advancements in technology. If they do not they risk falling behind their peers and losing touch with industry and societal changes. But by remaining open-minded and flexible, they can build a long-term relationship with their families while delivering the maximum value at minimal cost. Have a look at our post on 5 Tips for Setting Up a Successful Family Office.