Technology provision for family offices has been historically poor, but their desire to better manage a broad array of investments has dovetailed with digitisation. The ability is there to adopt a plug and play technology strategy that is much more suited to the esoteric set up of the family office or boutique asset manager.

Aris Iliopoulos, Investment Managing Director at Profile Software comments: “The use of technology by boutique wealth management and family offices has historically been limited to performing specific functions in accounting or client management - usually on an excel spreadsheet.”

However, in recent years this has changed. There is a growing appreciation of the value of modern, automated processes and powerful reporting. Delivery of client advice or having easy access to customer info at a glance for performance, strategies and what-if analysis are all under scrutiny.

Michael Kaimakliotis, CEO of Tindeco adds: “The concept of a family office has become more attractive as technology allows for a lean IT structure. For the first time, family offices can access truly powerful technology solutions delivered in software which is appropriate for them. In the past, such solutions were could only be used by large assets managers due to the complexity and inflexibility of the software design.”

Changes
Demand stems from many sources. Regulation has played a part as the environment has become more demanding. Richard Nordin, Partner at FA Solutions comments: “Pinning things together off the back of an excel spreadsheet is simply not up to the required standard anymore. This is even more the case if the family office is dealing with external parties or counterparties. And, as families grow and expand, younger generations come on board with different expectations with regard to digitised instant access and the ability to see consolidated portfolio holdings as well as individual holdings.”

Indeed. Expectations have changed. Different family members need different levels of visibility and so the demand is not only for the functionality, it’s for a fully customisable view. This is even more so the case where entrepreneurial wealth comes into play - much of it having being created within the technology realm and its owners being far more aware of the possibilities that technology affords and expecting to see it applied to all aspects of their own life.

Oliver Thommen, Head of Business Development at Masttro Switzerland, comments: “Small family offices often do not have very complex needs when it comes to their software and most of the time expensive portfolio management tools can be a bit too much for them. But these were, for a long time, the only software available. But just because their needs are not complex does not mean they do not need any support and so now they are reaching out to the market and undertaking beauty contests because technological advances mean that what they want is now possible.”

He says that the need of a family office is not just the portfolio – it’s all of the day-to-day admin too. “In terms of function, the need is basically for an information gathering and storage service. That can be storing documents, portfolio data, general administration as well as contracts. For the portfolio, meanwhile, they need risk analytics, consolidation and reporting and other elements like currency, risk, inflation, etc.”

He says suitability of a solution is now all about being able to connect these various facets and join up data to make for informed analytics.

Risk
A joined-up approach is particularly important when it comes to risk. The need to use risk metrics is becoming increasingly important as family offices invest in a broad range of vehicles. A comprehensive and consolidated view and analysis of absolute risk, relative risk, downside risk and risk-adjusted return metrics is key.

In addition, different investment vehicles have longer investment cycles, unlisted or lack of data. Derivatives and cross border holdings are also often more complicated.

Kaimakliotis explains: “Family wealth almost always contains assets which are illiquid, not transparent and thus lacking consistency when it comes to feeding data into the system - in some instances this remains a manual task. The data also needs to be associated with an asset type which captures the nuances of the investment position. The software therefore must understand the fundamental characteristics of the assets (such as whether they create cash flows or liabilities) in order to be able to measure risk and performance effectively.”

Private equity is a good case in point. It is still very manual and lacks standardization and some funds still operate on the back of PDFs. It is also hard to see clearly when it comes to transaction types, some of which have conditions attached such as recallable distributions.

Opportunity
All of this of course presents an opportunity for providers to come up with something that is flexible, customisable and highly automated to meet the needs of family offices.

Happily, the need to be able to do all this has dovetailed with the age of the API. This is a real driving force. Technology has become more flexible and able to be tailored to the needs of the family office which are data quality, reliability, trust and standardisation via APIs. Comfort levels of those working in the family office have risen too and the two have come together nicely.

Nordin comments: “Automation will be key going forward. This might be using a platform along with others and using APIs to buy into what they need and don’t need. The core mission is automating and simplifying wealth management workflows across the board.”

Customisation is top of the list for Iliopoulos: “A more personalised approach to customer needs, with more detailed and on the spot analysis as well as performance reviews is a game-changer. This delivers on customer needs by analysing and understanding his/her profile through the use of tools for auto profiling so as to offer the advice needed and therefore making the customers feel valued.

The advantages of a comprehensive solution are cited by Kaimakliotis: "You can either use a comprehensive platform or several pieces of software that are stitched together and speak to each other using APIs to serve as a single platform.” There are inevitably problems however coordinating multiple software solutions from different vendors, particularly when the user desires using a single front end. And therefore Kaimakliotis believes in a well-designed integrated solution.

Ultimately, this bodes well for provider and family office alike. If the market is there to pick and choose from various providers and the providers are keen to compete with each other then there is a healthy marketplace. The ability to integrate with each other as part of this pick and choose API enabled approach should also be taken into account in order to best serve the needs of the family office sector.