There is a new trend in the North America family office space - family offices taking the technology and systems developed in-house and then licencing it to external organizations.

Go to many a conference about wealth management in North America or indeed other regions and one subject often on the agenda is what sort of technology firms should buy. In these increasingly regulated times, the cost and spending side of snazzy new systems is an ever-present concern.

There is, however, another way of considering technology and all the other requirements firms have, and with some wealth management institutions that have decided to build in-house systems, they are looking at their own handiwork as a revenue generator by selling it to third parties.

Over at Oakbrook Solutions, a Chicago, Illinois-based systems, process, and delivery expert for wealth managers, its managing director, Chris Martinez, talked to Family Wealth Report recently about a trend he sees of organizations such as family offices taking their own technology ideas to the wider market. (Martinez has been at Oakbrook since 2011, with a background in the private wealth management arena.)

“It is a result of a lack of an all-integrated solution and the realization that every family is unique. Families are thinking they would be better off building something for themselves. They now realize, though, that as the family office sector has matured, they are not so unique after all,” he said. “They think that they can serve like-minded families,” he continued. 

Some 16 years’ ago, Oakbrook had been working for the Rockefeller family office, creating reporting and accounting solutions for the organization under one roof. “Back then, a system like that just didn’t exist,” Martinez said. Subsequently, Rockefeller asked Oakbrook to help architect the system which it eventually licensed to similar organizations, he said. “This was the genesis of Oakbrook and the Rockit Solutions platform,” he said, referring to the system that came out of Rockefeller (and sold last year to Fi-Tek).

“There has been a recent trend of single- and multi-family offices investing in and consolidating their in-house technology and licensing it or selling it to others,” he continued. “We’ll be seeing more single/multi-family offices licencing such services and this is going to disrupt the marketplace,” Martinez went on.

At Oakbrook, it works constantly with the family office space, as well as working with trust companies and RIAs, he said. “We have at any given time dozens of subject matter experts helping our clients on a project, retainer, or on demand basis.” Clients, for example, have included the likes of Pitcairn, the subject of a feature article by Family Wealth Report in 2014, which examined the case study of the transaction. 

Business models served by Oakbrook include broker/dealers, family offices, foundations and endowments, private banks, retirement services, RIAs, trust and custody organizations, and robo-advisors. One work area, Martinez said, involves helping evaluate whether it makes sense to outsource to a trust company or MFO or form a private bank/trust company. Oakbrook will help, for example, to scope out the feasibility of a family’s plans in these sorts of cases, he said.

The whole trend of advisors breaking free of broker/dealers to create their own advisory businesses also generates a need for organizations such as Oakbrook that can hold wealth professionals’ hands during the change, he said.

Brew your own
The trend of wealth management firms taking their own technology and business systems and selling or licencing the content to outsiders is not completely new, but the rise of organizations such as Rockit Solutions and Oakbrook points an interesting way ahead. These businesses are managed by people who have gotten their hands dirty trying to figure out their own firms’ needs before selling an idea to outside businesses. It means they have, so it is claimed, a very close appreciation of what clients will need precisely because they have lived the experience at first hand. 

“The main benefit in moving toward and leveraging internally developed technology is that they have been designed to overcome the lack of flexibility and functional gaps of standard `off-the-shelf” solutions,” Martinez said. “Due to the increasing complexity of managing not only the wealth, but often the operating businesses and lifestyles of high net worth families, multiple systems are needed, which vary in integration and interoperability potential. Additionally, various constituents served by family offices have different needs for information, resulting in a need for highly flexible information delivery and reporting,” he said.

“Without a single `silver bullet’ solution available, some firms felt the need to build their own custom solutions. As the industry has matured, we have seen best practice standards emerge, which can be leveraged across multiple families, and growth in the multi-family office space. As firms realize the amount of resources they have invested into their internally developed solutions, they are now seeing opportunities to commercialize the technology, and families are still seeking the answer to the question, `How are other families dealing with these challenges?’”

Licencing a firm’s technology to others is not straightforward, and there a number of considerations family offices should consider before taking this step, Martinez said.

“Be clear on what problem(s) you are looking to solve. There is a lot of overlapping functionality, but even more specific perspectives from which solutions have been developed,” he said.

“Think of the difference between a tax compliance focused family vs. a family whose main focus is on philanthropy (foundation and grant management) or the different needs of a private equity investor vs. those of a collector of art or wine. Thoroughly vet the security and confidentiality of the data (particularly if handled or maintained by the vendor). Also, ask for the source code to be placed in escrow to protect from any unforeseen issues arising later. This has been a common practice of the trust accounting vendors. However, it requires a commitment and backup plan to maintain the system should the vendor not be able to do so. Having expert resources identified up front will provide continuity should anything happen,” he said.

It is clear that this is a trend with plenty of legs. Commerce is, after all, full of examples of entrepreneurs who cannot get what they want from existing suppliers and decide to concoct their own products and services in-house. And at some point, they figure out that they have a new source of revenue. Everyone wins.