Managing complex wealth has significantly evolved over the last twenty years.  But many family offices and investment managers have yet to take advantage of new innovations in multi-asset, multi-currency accounting, portfolio management, and investment reporting systems. 

It can be a daunting task to choose the right type of technology to support your family office. If you are among the many ultra-high net worth individuals who have not incorporated tech for private wealth management, here are the keys to ensure that you can select the right family office technology for you.

The key questions to ask before adopting fintech for family office management

1. What problem are you trying to solve?

Before you start assessing technology for adoption or asking your advisors to make a recommendation, you first need to determine what problem you have that you need technology to solve. Do you need to improve data quality because your current systems are producing errors. Do you need independent and unbiased analysis of your managers’ fees, risk, and returns. Do you need to reduce your operating costs, do you need to improve investment analysis and reporting, do you need to improve your accounting workflows, do you need to improve overall oversight over all aspects of your financial life?

Like any business decision, you must first define the problem before you can understand how to solve it. Defining the problem also leads us to our second key question.

2. Are you willing to manage your family office like your business?

Historically, people have relied on receiving investment statements from their advisors and managers and accept them as fact. Most people don’t spend a great deal of time reviewing the details and simply gloss over summary level information as their managers assure them everything is going well.   Therein lies the irony. If you run your business on this premise, you wouldn’t be the ultra-high net worth individual that you are today.  There is a growing trend among wealth owners who want an independent view of their managers and investments with summary-to-transaction level information a single click away.  

Most business owners have instant oversight and access to all key performance data across their operating companies.  Business owners often take pride in knowing their operating margin, growth stats, and overall strategy for managing their business for the next 3 to 5 years.  Yet when those same business owners are asked about their family’s wealth they need to defer to third party advisors or family office staff to answer those questions.

The way you built your business is the way to manage your wealth.

Now that you have laid the groundwork for building the case for technology in your family office, it’s time to understand the differentiators to look for when evaluating financial software.

3. What information can it provide?

If the problem that you are trying to solve is access to information, then you need a platform that can support every transaction for every financial and non-financial asset regardless of global jurisdiction or ownership structure.  The more comprehensive the platform the better the chance of solving your underlying problem of information and actionable intelligence.

How does it gather and process information?

While many systems market themselves as comprehensive, supporting all asset classes and currencies, upon further review you’ll see that most of these systems generate material errors which can be very harmful to decision making.  Key questions including; how many transaction codes does a system support, has the system built their own library of direct data feeds or do they rely on third-party feeds or screen scraping technologies, and of equal importance does the system have a multi-asset, multi-currency investment accounting system as its backbone to ensure a higher level of data accuracy, all of which is critical in the evaluation.

Fintech companies that solve this problem must provide accessible oversight, independence, unbiased information, and transparency of your wealth at all levels. You should have a direct view of the data, no matter when you want to access it.

4. What is my exposure?

The coronavirus has already driven financial markets down more than 28%, destroying trillions of dollars in private wealth.   As you read this do you know your exposure to China, or your exposure to german manufacturing, or US pharmaceuticals or the travel industry worldwide?  Do you know which of your managers reacted quickly and correctly and which managers did not?  Are you actively engaged in tactical and strategic shifts in asset allocation, liquidity positions, and country or sector exposures?  The right technology platform must deliver this information to you and do it with a tax-level of accuracy regardless of the assets you own or where you own them.

5. How are my advisors performing?

Another problem individuals with high net worth who have multiple advisors need to solve is determining the performance of your financial advisors.

Do you know which managers contribute the most to risk, volatility, and return to your portfolio? Do you know what fees you are paying and how those fees relate to the returns you are getting?

The right technology delivers the means to accurately assess the credibility of your managers’ reports. If an advisor boasts gains but your family office management platform is showing a loss (which is a real-life example), you can then ask your advisor to provide relevant proof of the difference.

6. How reliable is this tech?

Sadly not all systems are the same, and we have seen well known software systems produce materially incorrect information to investors, even at double-digit levels.

Making the case: KPIs for family office technology

There is a growing need for more transaction-level-transparency, and the expectation of access to data that is trusted, comprehensive, personalized, and actionable to facilitate informed decision making. The right technology can significantly reduce your costs, improve your data privacy and provide trusted information that leads to decision making that preserves your family’s legacy for generations to come.