selecting family office technology
6 steps to selecting family office technology
Software
Updated on January 7, 2023
By Shaun Parkin
Illustration: Adrián A. Astorgano

Table of Contents

Traversing the sometimes confusing and time-consuming task of family office technological improvement is a challenge that needs a process. In this guide, our expert Shaun Parkin breaks down the six stages you can use as a guide to help make this determination, circumvent analysis paralyses, and make impactful improvements.

Introduction

For those that aren’t aware, the main Australian securities exchange, the ASX, recently shut down its ambitious move to new blockchain technology.  The reason? After a third-party review from Accenture, it was determined that there were significant execution issues, including maintaining timelines, communication with vendors and excessive complexity.  There are a lot of lessons for family offices in this, and hopefully, you can avoid the loss of time, money, and effort the ASX experienced.

There is a need for process here, but also the need to maintain a focus on the purpose of any technology change – to improve the result for the family and other key stakeholders.

Where the ASX seemed to stray is to focus more on change for the sake of it, to remove good incumbency technology and change the entire platform without a strong use case.  A process should include the priorities of the office, the variable components and how they can match the technology to them.

Below is a process by which family offices can start to isolate these priorities and variables as they build fit-for-purpose digital infrastructure.

Often, one of the major challenges with determining the best investment infrastructure is knowing what questions to ask, to avoid ending up with technology that doesn’t suit, with high sunk costs.

Below are the six stages you can use as a guide to help make this determination, look to circumvent analysis paralyses, and start to make impactful improvements to your family office investment technology.

1. Your priorities

As mentioned, these are the priorities of the office, not your counterparties. We see suppliers such as wealth managers and advice firms view their technology infrastructure as the best for their clients purely because it’s already established. But as technology costs and efficacy have improved, there is an ability for the office to become the central hub that all others plug into, not the other way around.

All family offices are different, however in my experience there is homogeneity in the challenges and priority lists between clients have a lot of crossovers. Without going into the idiosyncratic differences for each, there will be three main aspects that need to be addressed for all offices:

Aggregation
Data comes in different formats, from a vast array of suppliers and it needs to be brought into one place accurately, timely and securely. This aggregation is paramount, and we see a lot of issues with incumbent solutions, primarily Excel, with cobbled together legacy platforms.

Where once the domain of custodians, banks and wealth managers, the modern family office is now the aggregator of their own data. From looking externally for firms to track investments, secure documents and sensitive data, the family office technology can now provide these functions that are customised and specific for each user.

Automation
This is the big one for a lot of clients, particularly those that have complex investments and a small staff. You hear about very good, highly credentialed staff leaving family offices and some of that can be attributed to the sheer volume of manual data entry.

There is such as huge risk for families relying on manual data aggregation, as accuracy and timeliness of reporting is hampered by these processes. With technology now allowing direct data feeds via APIs and other integrations, it is becoming less of an issue. That’s not to say that the problem has been solved for everyone, and the question of direct data feeds available with each platform should be front of mind when selecting.

When selecting a platform or new technology that requires data feeds, make sure they have them or commit to connections (or find a middleware alternative) as I have seen too many “soon to be connected counterparties” stay that way for a long time, in particularly in markets such as Australia which may not be a priority for global players.

Analytics
We are seeing more and more need for analytics on the portfolio to be centralised with the office itself. There are still use cases for external counterparties to provide deep dives into the portfolio but there is a real push for improved day to day outputs for investment and finance teams to better manage the portfolio.

This can mean basic overviews of positions, with performance metrics that reflect a more top level viewpoint or sense check with some basic benchmarks.

For some families, the needs case is for deeper, more institutional grade portfolio analytics, especially as we see more CIOs coming from large asset owners such as pension and sovereign wealth funds. The portfolio constituents are also affecting this need, with private market and more opaque structures requiring increased governance, stress testing and risk metrics that cannot be provided outside the more sophisticated platforms.

2. Variables

The variables tend to be idiosyncratic to the office. These can include in-sourced vs outsourced management of technology, contracting entity, costs, client services domicile, domestic data feeds, integrations and marketplace of add-ons, resourcing and staffing.

I use these as parameters and check points when selecting possible solutions. One thing I try to make clear with clients is that when deciding based on variables such as cost vs efficacy, they need to be appropriately measured and a total or “true” cost metric used. This includes staff time, turnover, data risk and a raft of other factors.

3. Current systems and processes

Make a list of all the current technology and counterparties used by the investment office as well as the process used to manage the portfolio.

There needs to be a map drawn of the current flow of data, from the counterparties to the family reports.

Here’s an example:

family office curation

Patented by Shaun Parkin

 

4. Universe segmentation

This is a priority as it provides the family an idea of the options that are most suited. With the dreaded “demo dance” of meeting every tech provider that may be within the scope, this is where the power of family office trusted advisers and specialist firms come in.

From simple, inexpensive cloud-based tracking platforms to sophisticated, institutional-like portfolio management tools, the list is long. Once you have the priorities in place and variables overlaid, this is the time to start whittling down the most suitable solutions.

Families also need to take into consideration future needs and allow for flexibility. The catch word for my interactions with private office are Mobility (Don’t be tied to your counterparty’s tech stack) and Modularity (able to move up or down the complexity spectrum).

5. Priority matching

You have the priorities and the variables, you know the current and desired structure, now you need to match those against the universe of options.

This process is about experience and knowledge, communication, referrals and using your network to find those that match. Importantly, the best fit may not be the perfect fit, and this is where the watch words of mobility and modularity are key. Fit for purpose now may not be in the future and this needs to be taken onboard.

6. Selection and onboarding

Never underestimate the potential frustration of onboarding to new technology. Having someone internally take ownership of this process is one of my strongest recommendations. Often, the data to be aggregated or systems to manage are complex and under-reported. That’s why when asked by clients on the first step I say – “start with accurate and accessible time series data, right now.”

I have seen some onboarding go very smoothly, despite significant complexity. The reason? Someone has taken it from the “side of the desk” and priorities the gathering of data, managing timelines and maintaining strong internal communication. If you are going to establish a new technology base, make sure someone is given responsibility and agency to get the job done.

Frustration risk is high when managing expectations, both of output and timing.

Some family offices require a full project that covers all these aspects and some just need to be shown the right questions to ask and for a firm or person to be able to extract the detail they require.

The beauty of the right fit

Better admin works for you and your counterparties. I have seen good technology affect performance more than investments as there is an ability to engage the family, to monitor current exposure and to make quick and well-informed portfolio management decisions.

I had an investment committee meeting recently, the first one following the onboarding of a new, simple and inexpensive reporting platform. No longer did we have to wade through pages of report documents, often with little customisation as we followed the wealth manager’s overview.

Being able to call out specific performance notes, to quickly check on claims of benchmarking and to see it all in real time was transformative in both engagement with the counterparties but also the family members that up until now were not. And if that’s not a major reason for finding the right technology fit, then I don’t know what is.

Rune Toldam Tim Daum Kyle Zeno Macdonald Sonja Kissling

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