Today, family offices process large amounts of data and information. A typical family office is likely to have multiple custodian banks for each family member linked to the office – and that’s just the immediate money side of the family office’s assets. Add in private equity, real estate, and passion investments – a family office could easily have hundreds of information sources linked to their assets under management.
Many of these sources might be based in the family office’s home market, making them more easily accessible. However, in today’s globalized world, it has become common to have assets spread across multiple jurisdictions, adding another level of complexity.
On the operational side, there are always multiple communication points. These include the immediate family members, the family office employees, and third parties like product and service providers and advisors.
Another level of complexity is the likelihood of information asymmetries, whereby decision-makers often don’t have direct access to all relevant information.
Information asymmetries may also create a key person risk, meaning only one person has access to critical information. If that key person leaves, vital information might get lost. Inefficient use of technology often aggravates key person risks, as family offices still store information in error-prone spreadsheets or paper files – and some even rely on old-fashioned brain memory.
Comprehensive family office technologies go beyond data aggregation
At the core, family office applications focus on aggregating wealth data across multiple providers. However, the added value of family office technology platforms goes beyond pure data aggregation. The goal is to create a digital home for a family's wealth, enabling users not only to view but also to manage their wealth. Thus, a holistic approach also includes non-bankable assets such as real estate or private equity, provides an intuitive client-focused design, and allows controlled stakeholders access to support secure collaboration, communication, and document management.
For instance, the family office may provide the real estate advisor restricted access to only real estate assets and mortgages on the technology platform. The advisor can regularly update valuations and upload all relevant documents linked to the respective real estate items. An internal messaging system allows for secure communication without having to rely on insecure third-party email services.
Next-generation wealth owners are more digital
While technological solutions have become more sophisticated, wealth owners have also become more tech-savvy. Wealth is passed on to the millennial generation, which is comfortable with having a digital relationship with their advisors.
The personal relationship between the family office and its stakeholders will remain important. Investors’ demands will keep changing, moving towards a greater appetite for constantly evolving technological tools and 24/7 investment data. In turn, a smooth collaboration between family offices and their principals also improves the trusted relationship between them. Thus, to be ready for the changing environment, family offices need to invest in solutions that enable them to share information in real-time and securely and improve the customer experience.
Technology as an intergenerational mediator
Creating a legacy is not only important for the family’s wealth, but also for a long-term family office managed over multiple generations. To avoid the pitfalls of improper succession planning for the next generation, all involved parties seek a well-managed process. The good news is that technology has made achieving this significantly easier.
As such, wealth management technology becomes a mediator between generations. For those who take over wealth, technology becomes a means to access information; for their predecessors, it provides a way to share responsibilities step-by-step. And for both parties, digital platforms provide insurance against the sudden death of the person safekeeping all information. Data won’t be lost; instead, it will be easily accessible, organized, and up-to-date. Family knowledge and wealth remain protected.
The industrialization of Open Banking will reshape the family office industry
Due to cost considerations and limited supply, most technology solutions are only available to ultra-high net worth individuals and their family offices. However, as technology will become more mature and scalable, the average-wealth customer will increasingly demand similar solutions. While family office platforms might still be a niche product, they mark the beginning of a new area in digital family office services. There will be significant progress in the years ahead.
Today, Open Banking and modern wealth management tools are still in their infancy but will be a game-changer in the industry. With open banking, accessing wealth data will not only be standardized in one common format, but it will also bring along democratization in bank connectivity for all client segments. and increasing efficiency for all involved parties: family offices, banks, and software providers.
This will lead to a significant reduction in production costs, making family office technology affordable even for smaller wealth situations.
Wealth complexity, documentation management, simplified communication, data privacy – family offices have to offer comprehensive solutions that address the key concerns of their wealth owners: maintaining the overview and control of their increasingly complex wealth.
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