Issues ranging from how to use tech to help family offices become more efficient through to what to do in the event of cyber crime attacks were discussed by industry figures at a recent FWR summit in New York.

The role of technology in powering family offices, the threat of cybercrime and how to fight it and the best ways to find the right vendors were just some of the topics discussed by prominent industry figures at the conference organized recently by this publication in New York City.

The Second New York Family Office Fintech Summit, held at the Convene Center in Manhattan’s Mid-town district, saw delegates and conference panellists wrestle with the kind of forces driving family offices and other wealth managers towards the digital world, while raising some of the risks and challenges professionals and clients continue to face. (To see a link also about this event, see here.)

The sponsors for the summit were Archway; Addepar; Crystal & Company; EY; FundCount; iPaladin; Mercury Capital Advisors; Mirador; Oakbrook Solutions; PKF O’Connor Davies; ProFundCom; smartKYC; SS&C.

Jason Brown, who is the chief executive of Archway Technology Partners – and founder of that business – started proceedings by giving a talk, Do you have to be disruptive to be innovative? As the title suggested, he challenged the idea that disruptive tech is necessarily a force for progress, giving examples of where change can lead to worse, or less effective, products and services. Disruption per se is not what is required, but change for the better, he said. Clients, he said, often seek incremental improvements in a service and product. He also suggested that certain “barriers to entry” – possibly caused by regulations and the factors – could be actual spurs to innovation, because a market in which access was easy might not force entrepreneurs to be so creative. “Hard work translates into a certain respect for what got you there…..Many innovators in today’s world are chasing after buzzwords that don’t necessarily translate into innovations that add value,” Brown continued.

“It seems that a lot of people are chasing what I would call quick and easy steps to reach a valuation goal,” he said. “It is hard not to want to be a disruptive innovator because there’s a clamor for it,” he said. 

Panel 1
The first panel discussion of the day was on the theme of Right First Time: Best Practices for Vendor Selection and Implementing Technology. Speakers on this panel were Chris Martinez, managing director, Oakbrook Solutions’ Family Office Practice; Mike Slemmer, chief operating officer, Americas, for FundCount; Hugh Bagatelle, founding partner, Windward Advisory Group, and Marcella Odum, who is chief financial officer, The Lupton Company.

The first challenge in bringing in a new technology system is to understand that it is never likely to be as easy as one thinks, Odum, who said her business has been “paperless” for about 20 years, said. “It is very important to have an office that operates in the way that you operate,” she continued. 

At the outset, family offices must be “crystal clear” about what problems they want to have solved, and be aware that vendors have developed solutions from different perspectives.  Martinez said. This means FOs must communicate who they are, what they do, what they want to achieve, and focus on solutions developed for a similar client base. In talking to advisors and vendors, they must ask for references, and he noted that family office peer group organizations can be useful sources of such information. It is also important to check an advisor’s or vendor’s longevity, including their track record in development and service, financial strength, commitment to the market, and product roadmap. “You really want a partner that can grow with you and be there for you,” Martinez continued.

Slemmer said that clients must be strict with themselves in working out what their top- and low-order priorities are and be able to articulate these clearly. It is also necessary to distinguish the difference in such conversations between “price” and “cost”, he said.

“Price is a one-time thing but cost goes on forever,” he said. A vendor should have a formal method for implementing technology; have a repeatable process and enough people to cover all of an implementation, Slemmer continued. Another issue, he said, is the risk of “creeping elegance” – adding features going beyond what was originally agreed.

An important issue to consider is that some forms of tech and business innovation increase rather than reduce risks, Bagatelle told the audience. “I’m struggling to think of areas where innovation, however, when thought through carefully, increases risk. 

Bagatelle said a useful test is for clients, in the early stages prior to implementation, to give a vendor real-world data so they can see what a new solution might actually look like.

Martinez advocated pre-implementation assessments, because that helps to frame expectations and identify potential gaps in expertise. They can also help vendors explain to clients potential tradeoffs and key decisions they will need to prepare for during an implementation. 

“Be very clear as to how you define success,” Slemmer added. 

Martinez said that contract term lengths in tech implementations have shrunk in recent years as the pace of technology innovation has accelerated and concerns around technology that may be “good enough” today not addressing the challenges tomorrow brings. About 20 years’ ago, a ten-year contract was the norm; now, a five-year term is quite long.  Family offices should take a mid-term view and expect to see results and ROI within 3-5 years, so they should have the flexibility to make a change if needed.

Odum addressed the issue of the pros and cons of outsourcing tech and doing work in-house. One potential approach is “co-sourcing”, which involves dividing responsibilities, helping to curb costs and educate both sides at the same time, she said. 

Panel 2
In the second panel, discussion focused on the theme of “Making the Digital Family Office a Reality – The Challenges, Benefits & Risks To Be Managed. This panel was sponsored by iPaladin. Panalists were Linda Bourn, executive managing director, Family Enterprise Risk Practice, Crystal & Company; Jill Creager, founder and CEO, iPaladin; Paul McKibbin, executive director, Private Client Services, Family Office, at EY, and Donald Kozuski. Partner, Kuzusko Harris Duncan. He also chaired this panel.

People in family offices spend a significant amount of time on administrative tasks, Bourn told delegates, when asked about some of the tasks that the sector has to deal with and how this affects advice to clients. “Family offices oversee the management and administration of a growing number of family-owned entities. A digital platform could both reduce overall costs and free up time to focus on qualitative work – which is the focus of the family office,” she said. Innovations in a digital direction do not necessarily mean looking for reasons to shed staff, she continued.

It is important to look at the digital platforms that exist that are being rolled out and introduced in the wealth sector, Creager said. In today’s sector, there are too many cases of “executives herding cats and not spending time in growing a business”, she said. With younger clients, they assume straight off the bat that an advisor will pull up their details on a digital platform. With an older client, typically that sort of process has to be asked for, she said.

Bourn said she was interested to know how much data is in files [at family offices] and how much of it resides in emails. McKibbin responded: “We’re trying to build platforms for all such information. Email is a critical part and it has to be in there.”

An important issue to consider around efficiency, Bourn said, is that “time is a perishable resource….once something’s done, you cannot buy it back”. A significant issue for digital family offices is managing expectations. “Family offices are memorializing what will be provided to clients,” she said. 

Turning to security issues in digital family offices, McKibbin talked about the enormous number today of digital photos and digital content generally. “It’s a huge issue for family offices,” he said. 

Asked how long a digital family office requires to show that investment is paying off, Creager responded that with many systems up in the cloud, there are already many efficiencies and economies of scale among vendors. McKibbin added: “In some quarters the returns will be very quick.” Other developments around digital family offices may take longer to bear fruit, he said.

Panel 3
The third panel session looked at the topic of “Cyber-Security: Best Practice Insights on a Constantly Evolving Threat. That session was sponsored by PKF O’Connor Davies. Panelists were Annmarie Giblin, attorney for Leader & Berkon; John Curran, partner, Walden Macht & Haran; Sanford F. Crystal, executive vice president, Crystal & Company; Thomas DeMayo, principal, cyber risk management, PKF O’Connor Davies, and Theresa Pratt, director, information technology, Market Street Trust.

Curran gave an outline of who are the main sources of threat, such as foreign governments, criminal gangs and lone hackers looking for gain or to promote some sort of agenda. He explained advice around what should firms do to prepare for an attack; whom to call and contact when there has been a breach, how to put matters right and remediate those suffering a loss, etc. 

“When that [breach] happens, you need to be sure you have a plan,” DeMayo told delegates. “The sooner you can get legal involved, the better,” he continued. An important step is to have a person designated with the role of speaking on behalf of an institution such as a family office when there has been an attack. “Employees are probably your biggest vulnerability,” he said, adding: “Don’t pigeonhole this [cybersecurity] is an IT issue. It has to be dealt with as an enterprise issue.”

In talking about insurance protection and risk management practices, Crystal said that insurers are constantly adapting to evolving exposures. Policy forms vary widely from carrier to carrier in terms of the scope and breadth of coverage, and it is critical that buyers of cyber insurance understand what they are getting before purchasing coverage. One issue to consider in purchasing Third Party coverage, which extends the policy to cover a breach at a critical outside service provider.

“It [cybersecurity] is not a technical issue exclusively but one third of the issue at best,” Pratt told delegates. Training staff, board members and suppliers is essential, Pratt, who trains organizations in this space, said. Firms need to do risk assessments to understand where they might be vulnerable, she said.

Panel 4
The fourth panel examined issues under the title of “Alternative Assets: Addressing Aggregation, Accounting and Reporting Challenges. The sponsor of this panel was SS&C Technologies. Speakers were Darren Berkovicz, MD, SS&C Technologies; Eric Feldman, chief information officer, The Riverside Company, and Tania Neild, chief technology officer, InfoGrate. Your correspondent was chair of the panel.

As explained, according to the kind of data seen from various providers, alternative assets (hedge funds, private capital, etc) can account for as much as 30 per cent of family offices’ total portfolios, down to about 15 per cent. This is typically far higher than among the mass market. Recent comments and interviews with industry figures suggest that family offices’ interest in alternatives continue to increase, as the hunger for returns remains. An issue might be whether inflows of institutional money into the direct investing sector will dilute returns.

Neild told delegates that calculations of how well such investments are doing is helped by the use of internal rates of return (IRR) measures, which is a relatively simple way of expressing returns. (IRRs account for the complex timings of commitments of money to, and exits from, investments.) Data needs to be carefully managed and curated, she said. 

Berkovicz said investment managers must build a “scalable process” for handling data around investments. “Volumes [of investments] are kind of high, especially from the hedge fund and private equity area.” There hasn’t yet been a lot of standardization of how to handle data in the private equity space, he said. “There is a push towards some standardized products in private equity,” he said, continuing that there remains a bit of a “lag” in the timings of reporting on investments to the end-client.

Feldman said ownership and understanding of data related to three “pillars”: 1, understanding what requirements of data are; 2, knowing where one’s data is, and 3, who owns that information.

Neild said consistency is “king” in the use and handling of investment data; technology around it can be expensive. “You don’t want to have to close books in order to recalculate your holdings,” she said.

“You need to have expertise and need accountants who really understand portfolio accounting,” Berkovicz said. Some accountants don’t understand this space, he said. 

Feldman told delegates that when he started Riverside in 2011, typical communications with clients usually involved sending over a pdf document. “What has to happen is that someone has responsibility to screenscrape or manually type that sort of information to do accounting. The world is moving to 21st Century technology. We are being requested to provide data that can be ingested by internal systems,” he said.

Panel 5
The fifth and final panel of the conference focused on the theme of “Family Investing in Family-Office Technology, and panelists were Stephen Martiros, founder, Financial Building Blocks; Andrew Scharf, vice president, OurCrowd; Edouard Thijssen, chief executive and co-founder, Trusted Family, and Avi Sharon, .principal, Blackstone, multi-asset investing. He chaired the panel.

The panelists spoke about their platforms – with a brief introduction and presentations to the audience. In Thijssen’s case, he talked about his family tree and illustrated a Facebook-style portrayal of a family and its dynamics. Martiros illustrated how his business empowers people to make good financial decisions by helping them learn the basics of personal finance. Scharf talked about OurCrowd and its status as a portal for vetted, high-quality investment deals, designed as he said to disrupt the “insular club” of venture capital.