There are many investment opportunities to gain Alpha. But Alpha can also be achieved by keeping a close eye on expenses – as Jack Bogle, the founder of the Vanguard Group and avid proponent of low-cost funds, has proven over the years.
The concept of gaining Alpha by improving efficiency was the focus of Alpha Ignored? Rethinking Family Office Operations and Technology, a presentation by Mike Slemmer, COO of FundCount, at Lido Consulting’s 14th Annual Family Office Investment Symposium in Santa Monica, CA.
Key Takeaway:
- Discover strategies to cut costs and improve efficiency in your family office operations.
- Understand the pitfalls of relying on disparate spreadsheets and inadequate tools like Excel and QuickBooks.
- Find out how automation can save your family office up to 40 hours per month by eliminating time-consuming manual tasks, enabling staff to focus on strategic decision-making.
Achieving Alpha Through Expense Management
Jack Bogle, the founder of Vanguard Group, revolutionized the investment world with his emphasis on low-cost funds and the importance of minimizing expenses. Bogle believed that high fees and costs are detrimental to investment returns and that keeping a close watch on expenses is essential for achieving Alpha. By focusing on expense ratios and eliminating unnecessary costs, investors can significantly enhance their net returns. In a family office context, this means scrutinizing operational expenses, management fees, and other overheads to ensure they are justified and minimized. Implementing efficient operational processes and leveraging technology can further reduce costs, thus contributing to overall Alpha.
Challenges in Family Office Operations
The topic hit a familiar chord with the nearly 500 HNW and UHNW individuals, institutional investors, CPAs, lawyers, and other delegates that attended the event. They know that inefficiency abounds in many family offices. At FundCount, we’ve also seen it firsthand. For example, one client came to us with 16 manual processes between investing and operating company flows that needed to be automated and rationalized.
Too many manual processes are the main culprit of inefficiency throughout the family office, such as:
Disparate Spreadsheets Make It Difficult to Aggregate Information for a Holistic View of Wealth
Family offices often rely on multiple spreadsheets maintained by different team members to manage various aspects of their financial operations. This reliance on disparate spreadsheets creates significant challenges when attempting to aggregate data for a comprehensive view of the family’s wealth. The lack of integration means data is often siloed, making it hard to get an accurate and up-to-date picture of the overall financial health. This fragmentation can lead to errors, inconsistencies, and significant time delays in reporting, ultimately hindering effective decision-making and strategic planning.
Reliance on Tools – Excel and QuickBooks — That Aren’t Made for the Rigors of Partnership and Multi-Entity Accounting
Excel and QuickBooks are widely used due to their accessibility and ease of use. However, they are not designed to handle the complexities of partnership and multi-entity accounting that are typical in family offices. These tools lack the necessary features to manage intricate financial structures, diverse asset classes, and multiple entities efficiently. The limitations of these tools can result in inaccurate financial reporting, compliance issues, and increased manual workload. Family offices need more robust, specialized software that can cater to their unique requirements and ensure accurate and efficient accounting.
No Automated Interfaces to Custodians for Data Download
The absence of automated interfaces to custodians for data download is a significant barrier to efficiency. Without automation, family office staff must manually retrieve and input data from various custodians, a process that is both time-consuming and prone to errors. Automated data feeds would ensure that information is updated in real-time, reducing the risk of mistakes and freeing up staff to focus on more strategic tasks. Moreover, automation improves data accuracy and timeliness, which are critical for effective investment analysis and decision-making.
Lack of ‘Presentation Ready’ Reports
Creating reports that are ready for presentation is another challenge faced by family offices. Manual report generation often involves collating data from various sources, formatting, and ensuring accuracy, which can be labor-intensive and time-consuming. The lack of automated, presentation-ready reports means that valuable time is spent on preparing documents rather than analyzing data and making informed decisions. Implementing systems that can automatically generate professional, comprehensive reports would enhance efficiency and allow family office staff to devote more time to strategic activities.
FundCount partnered with Family Wealth Report to better understand the above challenges and the broader impact on family offices. In Efficiency in Accounting and Investment Analysis, a report based on a detailed survey of family offices globally, 83% of respondents said the biggest weakness of their current system was the prevalence of manual processes. This was followed by the continued need for Excel and QuickBooks (cited by 61% of respondents) and the inability to analyze and report on investments in one system was a close third and cited by 58% of respondents.
The big issue is that all this inefficiency adds up. In fact, the report estimated that nearly three-quarters of family offices waste a minimum of 10 hours per week on manual tasks. When considered on a monthly basis, that’s 40 hours wasted – or the equivalent of one entire work week!
