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Family Office Planning for Performance in the Real World

How Technology can Make or Break Your Family Office

We’re on the cusp of a massive wealth transfer, with estimates suggesting a staggering $72 trillion (or even more) will change hands over the next quarter-century. To manage this influx effectively, family offices are facing a pressing need to modernize. Modern family office planning involves a race against time to fortify, upgrade, and optimize their technological infrastructure in order to handle the evolving demands of operations, investments, and security.

Key Takeaway:

  • A massive wealth transfer is coming, and family offices need to upgrade their technology to handle the complexities of managing this influx.
  • Modern family office software automates tasks, streamlines data management, and provides faster, more flexible reporting for clients.
  • Focus on solutions with strong data foundations that can handle diverse asset classes and complex transactions.

Family offices are grappling with a multi-headed beast – a rapidly growing “investable universe” (investment options), ever-changing tax codes, intricate legal structures, and increasingly demanding clients. These complexities have rendered older, generic systems obsolete. The good news? We no longer have to wait for technology to catch up. Modern, family office-specific software is here to tackle these inefficiencies. It can handle complex assets and transactions, slash data processing time, and meet client expectations.

However, family offices haven’t exactly embraced these advancements with open arms. This resistance is understandable, but perhaps a bit short-sighted. Evaluating and implementing new systems might seem daunting for already busy staff. But when faced with the choice between efficiency and clinging to outdated systems, family offices should recognize the need to address their data management woes head-on.

Automation and Family Office Planning

The world of investable options has exploded, giving clients more choices for diversification but also creating a data management nightmare. New and complex asset classes like private equity, private debt, cryptocurrencies, and alternatives have entered the game, each with unique reporting requirements and data needs for timely valuation and ownership tracking. Adding fuel to the fire, international investing throws compliance and valuation complexities into the mix, thanks to exposure to various tax regimes and currencies. These challenges are further amplified by simple asset growth.

Meanwhile, clients are demanding faster and more flexible reporting. Gone are the days of waiting 30 days for a portfolio update. Today’s clients expect mobile and desktop access to reports, ideally with same-day or next-day turnaround. This creates a paradox for family offices: clients want both simplicity and a wider range of reporting options.

Automation Challenges

This surge in complexity cripples family offices relying on generic software or outdated legacy systems. The influx of new investments and asset classes means more non-standardized data – emails, PDFs, CSVs – that needs processing. To handle this data mess, staff are forced to cobble together solutions, resorting to manual data entry in spreadsheets or even paper records. The cost of inaction becomes clear with every piece of data: manually transferred from performance reports to spreadsheets, from client management systems to accounting software, from websites to client reports. Every manual step signifies a hidden opportunity for automation.

However, a natural resistance to change keeps many offices stuck in inefficient workflows. To overcome this hurdle, a well-defined change management plan is crucial. This plan should begin by identifying the office’s specific data pain points. Focus on the data itself and how it’s managed, then analyze solutions with a data-centric approach. This shift in perspective can pave the way for technology adoption and unlock the path towards a more efficient future.

Unified Platforms: Breaking Down the Options

Family offices used to (and some still do) cobble together solutions from general accounting software or generic wealth management tech. These tools simply weren’t built to handle the intricate investment management and compliance needs of high-net-worth families. For those seeking a more tailored solution, custom software development was an option. However, keeping these custom systems up-to-date as data demands change has become a costly and time-consuming burden that must be considered during your family office planning endeavors

Family offices traditionally have two main software choices: unified platforms and hybrid solutions. Unified platforms, like FundCount and SEI Archway, offer an all-in-one solution for accounting, partnerships, and portfolios. This centralized approach offers advantages that become clear when compared to the second category: hybrid solutions.

Streamlined Powerhouse Solutions

These platforms shine with their consolidated data. Unlike SEI Archway (which only handles USD), unified platforms like FundCount can manage multiple currencies, simplifying foreign entity management for family offices. They also excel at handling complex structures. While SEI Archway struggles with valuing private equity holdings across multiple entities, unified platforms can streamline this process, saving significant time.

Hybrid Solutions

Hybrid solutions, offered by companies like Eton Family Office, Maestro, and Addepar (considered more portfolio-focused), often boast impressive reporting features. However, user feedback reveals significant drawbacks.

Here’s the Catch:

  • Fragile Foundations: Many hybrid solutions have weak general ledgers, requiring constant maintenance and repairs.
  • Data Discrepancies: The lack of system integration in hybrid solutions forces manual data manipulation, leading to errors and inconsistencies. This “human element” introduces bugs and undermines data accuracy.

Avoid the “beautiful report, bad data” trap

A Word of Caution: Look Beyond the Shine

A crucial piece of advice we would offer is don’t be mesmerized by flashy reporting with dazzling charts and graphs. These visualizations might mask weaknesses in the underlying accounting and complex calculations.

Some vendors frame the challenge of accounting and analytics as purely a visualization issue. They believe a prettier picture solves the problem, but it merely rearranges the deck chairs on the Titanic. These firms may boast impressive user interfaces and reports, but fail to address the core issue: seamlessly integrating data from diverse asset classes. FundCount, for example, emphasizes that the problem is structural, requiring a solution that goes beyond aesthetics.

In simpler terms, family offices heavily invested in private equity (which is most) should prioritize understanding how the system handles this asset class, not just how reports look. During software demos, delve deeper: how does the system capture and track transaction activity (capital calls, contributions, distributions, etc.)?

Remember, the user interface and report design are important, but they pale in comparison to data accuracy. Avoid the “beautiful report, bad data” trap. Focus on solutions that provide a robust foundation – accurate data is the bedrock for informed decision-making.

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