Heightened demand for investment transparency and tighter disclosure regimes have led to a need for greater technological resources at family offices. Businesses switching from a single family office to a multi family office structure and the growing international dynamic of families has also added pressure for up-to-date wealth management systems. However, the complex wealth management needs of family offices have led to serious gaps in areas that family offices can automate and streamline via technology.
Technology companies servicing the wealth management side of family offices allege that many family offices are overly reliant on old systems, manual processes and use unsophisticated software to reconcile client holdings. Coordinating various information from multiple custodians and then re-keying that data into documents for clients also creates problems and errors. Out-of-date systems means advisors may not be able to access accurate and timely data, which can not only create issues with client holdings but could lead to regulatory headaches.Often the rationale given for why family offices are seen as reluctant to invest in new systems is apathy and a reliance on old ways. However, consultants argue that European family offices are trapped into using inadequate systems because a proper, all-in-one solution does not exist. Professionals have to work with systems that are built for larger institutions or use a range of different systems, leaving gaps that need to be filled manually.
Bespoke, dedicated solutions for family offices are available in the US but across Europe the situation is seen as more complicated. Family office consultants note that is because the US doesn't have the same issues to contend with as Europe, such as a complex tax system. Still, the US is not without problems. The threat of tighter disclosure requirements and demand for higher proportion of international investments from more internationally based families means a one-stop solution is hard to find in any country.
Michael Maslinski of consultant Maslinski & Co pointed out that the idea family offices are behind when it comes to technology and automated solutions is often pushed by tech companies trying to flog their services.
"For some 15 years I have heard the same argument from technology providers, that family offices are antiquated but then those firms disappear as they haven't cracked the problem of creating a single solution for the complex needs of this industry," he says. "Most family offices of any size are familiar with what is available in off-the-shelf technological solutions. If someone had the perfect software - they'd buy it."
Some family offices that grown out of a family business might initially use the same systems, Samantha Morgan, partner at Withers, an international law firm looking after family offices, says. But they soon find themselves struggling to cope as the pressure of confidentiality requirements means information needs to be kept separate. Overall, it has been her experience that family offices spend a great deal of money shoring up their IT capabilities and ensuring they are sophisticated enough to handle changing client needs.
As the family office market continues to grow and develop, there will inevitably be a greater focus on dedicated systems and IT solutions. Systems will also need to offer a high level of tailoring in both the risk management and reporting functions.
Maslinski also argues that some of the newer pressures on the technology front mean family offices are no further behind than anyone else. "Family offices are giving counterparty risk a great deal of attention," he says, questioning just who was capable of adequately assisting family offices with monitoring such risk considering it is an area that was severely underestimated by almost everyone in financial services.
There are many technology service providers dedicated to family offices. They offer a myriad of solutions to help with areas of business such as: research management; portfolio monitoring and tracking; trading compliance; analysis of performance; trading management; inclusion of non-investment assets in performance information; data storage; data reconciliation; and managing data feeds from multiple custodians.
While it would seem the services on offer are comprehensive enough to solve all back-office issues within the wealth management side of a family office, there are added complexities. Not only do family offices vary widely, so too do the assets in which their clients invest and the regions where they are located. It is not merely a matter of keeping track of equity portfolios but reconciling that with hedge funds or even art holdings, monitoring their valuations and reporting on it.
All the while, they must maintain an eye on client needs, risk requirements and goals while also conforming with the various regulatory requirements that accompany each step for each product or asset class in varying jurisdictions. Even within the same product type there is little, if any, standardisation in the information reported by providers, which makes the situation more challenging.
Tech providers agree the family office space is complex and varied, conceding that not all areas of this industry are reluctant to embrace technological solutions. There are small, single family businesses that neither need nor can afford to beef up automation. There are also those that advise solely on mutual funds and so have much of the work done for them by the many platforms available or banks' own systems. Businesses that handle wealth management in-house are also not necessarily a target group for tech firms as they are thought to be better equipped.
The biggest problem area in the spectrum of family offices is thought to be small single family offices moving to a multifamily offices or small multifamily offices that have suddenly become larger. Large firms are another target area as the more money a family office manages, the more complex their needs become. And many of these are seen as being encumbered with clunky legacy systems.
The three main areas where family offices are said to most need proper technological resources are: record keeping; wiring client mandates into investment processes and monitoring capability; reconciliation and reporting.
However, while greater automation may be needed as family offices grow and contend with greater information demands, not everyone is an advocate that technology is the sole solution. Maslinski noted: "Sometimes the accuracy of the detail can stand in the way of the clarity of the picture," he noted. "There is merit in human intervention. You want things to be thought about, not just reported. If it was all automated then there could be a change in one part of a client's holdings that affects another part. Only someone who knows and understands the full picture could spot the problem - not a piece of technology. There needs to be the right blend between the best use of technology and the best use of people and that is tricky to achieve." Morgan echoes this sentiment, noting that while automation can be useful in terms of risk management people are a vital component in family offices. She adds: "Every family office needs something different so it is important they take proper advice and work out what technology is they really need. These systems represent a huge investment so they need to make sure they are not just buying enough but they could be buying too much."