“I hate adding new software”, said the family office principal, the founder of a (very) successful software business that was recently sold. “Sales teams always promise the world, it often doesn’t work off the shelf and then you must educate internal staff to manage it.” “But we need to find a better way of managing the family office as the current state is not working for anyone.”
What drives change?
Events such as the COVID-19 pandemic have highlighted the need for family offices to be able to adapt to unexpected events and disruptions, and that investing in measures such as automation and digitalisation can help them do so.
This article aims to illustrate the potential decision bottlenecks, manage the onboarding process, and discuss the drivers of change in how family offices are utilising new investment technology and how to manage the current office dynamics for a new regime.
Nothing lasts forever. My engagements with family offices are often initiated by at least one of three events:
- Establishing: either following a liquidity event or having decided that this structure is preferred for managing their assets.
- Reviewing: a realisation that the current state of the investment offices has flaws and needs to be reviewed by internal or external eyes. Often the catalyst for this review is a realisation that there are staff/family frustrations, inefficient workflows or the risks of the current structure becoming more obvious.
- Changing: when there are wholesale changes made to senior executives, investment teams, family member engagement, and overall needs, the list is long and varied. These changes often cause the family office to look inward as they re-staff or restructure.
Side of the Desk
One of the challenges with most family offices is their size and staffing. Compared to other asset owners and wealth managers they are often very lean in terms of numbers with a preference for a tight trusted group. This can mean they wear many hats, have a varied workload, and are often pulled into structural decisions with little or no experience. Having a project that can include specific requirements needs to be the whole of the desk, not just the side.
One of the reasons outside firms or other operational specialists are used is because they provide two clear differences:
- They are not employed by the family office and therefore can provide a more objective view.
- Technology and infrastructure are core competencies and they have previous experience in managing change.
Component pieces
Firms are not looking to be trapped by wealth managers and other counterparties. Family offices want to take the most helpful components and if they can be modular then all the better. If it’s data aggregation, can providers get that from professional services businesses and keep it to that trusted relationship?
There is a range of new technology providers that assist the modern family office. We’re seeing a proliferation of suppliers that view family offices as a growing client base and are beginning to design attractive aspects to their unique needs. Where once it was retail or institutional focussed, the family office segment has grown as a viable sales channel.
Expectation Management
There is no silver bullet when it comes to investment technology solutions and therefore it is imperative a priority list is established. The overriding theme is – is this fit for our purpose? Is it designed for the users? And will it align with our priorities? There is also a need to understand the costs of change, both time and money. Data is a funny thing, for those that use it every day to manage portfolios, it sometimes feels like it magically appears from the “back office” team. For anyone that has worked in large corporate investment businesses, the challenge of sourcing data can be a challenging aspect of moving into the family office space. We have seen the demand for immediacy and accuracy cause significant frustration when moving into new technologies. One way of alleviating this is to “bring everyone on the journey.” Have everyone understand the volume of trading data that often needs to be aggregated, cleaned and reconciled.
Modular and Portable
This is becoming the catchword for anyone looking at technology. The ability to add specific solutions that would usually have to be installed as part of a larger deployment. This allows investment offices to find software that is applied as a single-challenge solution. Examples include portfolio overlays (factors, redundancy, SAA etc), trade executions, capital call management, GL middleware, extraction or parsing tools for data collection, and cash flow management software. Where once these would need to be under one platform umbrella, with greater interoperability they can integrate with the current infrastructure.
Preparation Prevents Pain
When discussing change with families, one of the questions is “where to start”? The answer, invariably, is that there is a chance to start a process to prepare for the future right now, regardless of whether you’re looking to make any changes. Getting the basics right early can reduce a significant amount of pain in the future.
Some practical steps to assist:
- Keep it clean and accessible: even if you’re using basic tools for managing data or documentation, make sure it’s accurate, easy to access across the office, is cloud-based and can be used for future complexity. Excel is a great tool for data but keeping time series data in an uploadable, reconcilable format is key.
- Manage key person risk: small staffing often causes processes to be managed by one person without oversight, causing issues if they leave or there is no backup access. Having two sets of eyes on all aspects of the office administration will reduce this risk and allow for improved “upload” to any new technology and reduce backfill costs.
- Record the issues: when it comes to setting priorities for a family office, there should be a list of specific challenges we are trying to solve. Noting every workaround, every inefficient process and manual frustration can be a very effective tool when it comes to matching up a new solution. Start this now.
Onboarding
Having been a part of onboarding clients to new technology, it is a process fraught with potential frustration. The aim is to streamline the process as much as possible, here are my tips:
- Establish a timeline: and allocate internal resources, especially if there is a significant amount of data sourcing involved.
- Have coverage on both sides: if you’re the solution provider, make sure more than one person has full look through how it is progressing, there is significant frustration that occurs when having to get people up to speed. From the client side – the same coverage issues need to be managed for internal stakeholders to understand how it is progressing.
- Be timely in reactions: make sure there is clear expectation set when they need to reply to emails/notes. One of my all-time pet peeves is a lack of acknowledgement of emails. A simple “understood” or noting that they have received the instruction goes a long way to reduce the risk of shouting into the void.
- Project plan: in any format that works and makes sense to both parties. This also serves as a tool for other stakeholders to dip in and out of the process without having to guess about progress.
- Don’t wait until the weekly or daily call – especially if the meetings are weekly, this can mean significant delays as people wait for replies or to ask questions. Email and a phone are an amazing tool kit, don’t die wondering.
- Stakeholder engagement: from the start of the process, if possible. We see onboarding de-railed when users of the new solution are not deeply involved until late in the process.
- Expectation management: Both parties need to be clear on all the above. Align your expectations, understand that nothing happens instantaneously and don’t overpromise and underdeliver. Listen, make good notes and make this process as painless and effective as possible. There is no way to turn back time and if this process is run poorly, the client will question their decision already.
Don’t Suffer in Silence
If you work within a family office and see a need for change, speak up and offer a roadmap to change. Start the process of recording current issues now because there needs to be a strong case for major technology changes. It often means increased costs and a decision to be made that can affect everyone.