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Moving Family Offices Forward

Interview with Howard Geller, Principal, Hudson Peak Group

As principal and founder of Hudson Peak Group, Howard Geller works with individuals and family office clients to advise on financial and strategy issues, including analyzing various financial products.

Due to his in-the-trenches expertise and objective insight, Geller was recently quoted by Family Wealth Report (FWR) in Family Office Focus: Efficiency in Accounting and Investment Analysis. This research study, prepared in partnership with FundCount, offers an in-depth look at the technological and operational challenges of family offices.

FundCount caught up with Geller for a brief interview to get his perspective on some of the findings in the research study and to discuss other issues impacting the family office sector.

FundCount: Based on the FWR survey, it’s clear that family offices love Excel and QuickBooks. Are these general-purpose solutions so beloved and engrained in the fabric of a family office that firms are reluctant to give them up even if it means settling for onerous workarounds? In other words, are Excel and QuickBooks causing stagnation in the industry?

Geller: In some ways, yes. The fact that family offices are change sensitive means this sector is slower to embrace new technology. The default is just to accept the constraints of general-purpose solutions, whose negatives are tempered by their greatest advantage – they are universally known and easy to use.

However, general-purpose solutions come with limitations. Excel, for example, cannot be scaled forever. Since each family is unique and has a different way of doing things, some family offices will reach their ‘pain threshold’ sooner than others. It also depends on how quickly the office is growing, the types of assets they invest in, the philosophy of the family and other factors.

FundCount: Every family office claims to be unique. How do you see this uniqueness translate into a family’s accounting and reporting needs?

Geller: Numbers are numbers. The real issue is how people want to see them. It’s how the family office is staffed, how it views and analyzes its portfolio, the level of importance it assigns to investments and entities, its assessment of risk and the decisions taken based on those numbers that make an office unique.

While there is no one-size-fits-all solution, there are vendors that offer flexible accounting and reporting systems designed specifically to meet the needs of the family office sector. These solutions help deliver investment insight and operational efficiency that is not possible with spreadsheets.

FundCount: Let’s talk about operational efficiency. Do family offices view operational efficiency as a way to save money, or does efficiency mean ensuring highly paid staff are focusing on critical business rather than administrative paperwork?

Geller: It’s a little bit of both. Family offices are price sensitive, so cost containment is important. But family offices also run lean, which means each staff member needs to provide maximum value. It’s not a productive use of talent to have highly paid professionals mired in routine administrative tasks. Nor does it make sense to have the group that handles reconciliation, for example, involved in the more complex investment side of the business, which they may not understand. The challenge is to balance the needs of the office with the skill set of the team.

Family offices that are heavily reliant on spreadsheets and disparate systems must manually manipulate data each time there is a new reporting request, turning what should be a relatively easy task into a major project. This is where using software specifically designed to support family offices proves its value and becomes a wise investment decision. The benefits will quickly outweigh the costs by freeing up resources to focus on activities that grow wealth.

FundCount: There is a lot of buzz around alternatives. The FWR study indicates that single and multi-family offices are allocating an average of 54 percent of assets to alternatives, which includes private equity, hedge funds, real estate companies and virtual currencies. Do you think these asset classes might serve as the tipping point that pushes family offices to abandon spreadsheets and seek more specialized technology solutions?

Geller: Accounting and reporting for alternatives is definitely one of the biggest challenges for family offices. While spreadsheets might suffice for managing publicly traded debt and equity investments, they cannot support the complexity of alternatives or multiple entities. So, yes, it’s quite possible that family offices’ increasing investment in alternatives could prove a boon to specialized accounting and investment management software companies like FundCount.

FundCount: What is next on the horizon?

Geller: If alternatives don’t push the industry forward, millennials might. They are already driving change in reporting, speed and accessibility. Millennials want more information on a more timely basis and reported in the way they want. They expect flexibility and are less accepting of “this is the way we always do it” answer.

I think we will continue to see millennials exert influence and move the family office further up the technology spectrum as they age into their role.

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