Solving The Family Office Data Problem

Charles Paikert US Correspondent New York April 22, 2024

Solving The Family Office Data Problem

Our US correspondent reports on views on fintech held by industry figures at a summit organized by the publisher of this news service.

If managing mountains of data is the problem for family offices and wealth managers – and it is – then what’s the solution?

Leading industry executives and experts offered a range of options at Family Wealth Report’s Family Office Fintech Forum in midtown Manhattan.

The biggest conundrum facing family offices is that even when they start to digitize the back office, they “still live in an analog world,” according to keynote speaker Raymond Dinunzio, a partner with TOS, a Houston-based family office that also provides digital management services. 

High performing family offices are rare, if not non-existent. They are plagued by a lack of automation, digitization and cybersecurity as well as an “extraordinary” variability in employee quality, Dinunzio asserted. And, as family offices face more regulation, he said, the subsequent increase in administrative work and back office staff are making matters worse.

What’s more, family offices, characterized by a wide array of family members who have different interests and control different entities, are inherently idiosyncratic and disorganized, argued keynote speaker David Teten, a venture partner with Coolwater Capital.

As a result, family offices are starting from a “weakened position” when it comes to centralizing data, Teten maintained. 

Better to outsource?
So should family offices and wealth managers outsource management of this ever-increasing and widely dispersed amount of data?

While studies indicated that firms that did outsource tech functions outperformed those that didn’t, Doug Fritz, president of F2 Strategy, a fintech consulting firm, cautioned family offices to be very careful before signing on with an outsourcer.

Wealth firms and family offices should make a list of things that could go wrong and benchmarks it expects vendors to meet, Fritz counseled. “Have measurable ROI on the table” to gauge how the investment will pay off, he told the audience.

Potential clients should also carry out due diligence to determine whether a vendor, especially a startup, will likely be around in five years, go out of business or become an acquisition target, Fritz added.

Also critical when making a decision on outsourcing: make sure that the “right stakeholders” in the firm or family office are involved, said Kelly Moore, senior sales director for Arch, a digital administration firm specializing in private investments.

Who owns the data – and what does it cost to service it?
Ownership of data also emerged as a key issue. While family office and wealth management firms may technically “own” their data, they can become too dependent on software vendors, said Jonathan Theberge, director of Wealth Services at KeyBank

“You want to be sure you have the ability to transition away [from a vendor] and that their capabilities will keep up with your needs,” Theberge said in an interview with FWR.

No matter what choices firms make, tech costs will only continue to increase, Fritz said estimating that multi-family offices now spend around 7 to 8 per cent of revenue on tech, a number that he said will increase to at least 10 per cent in five to 10 years.

‘Sources of pain’ and solutions
As to where that money will be spent, a number of vendors at the forum described their services.

“Sources of pain” for family offices include regulatory demands, staffing constraints, investor frustration and compressed timelines, rise in alternatives and disparate technology, according to Scott Trimble, executive director of Asset Vantage, which offers clients secure global data hosting by partnering with Amazon Web Services. 

TOS aims to support fully-digital family offices using “best of breed” fully-connected technology, Dinunzio said. The firm offers secure portal access, a reporting platform with integrated data aggregation tools, alternative investment data management and internal processes for automated data archiving and data audit he said. uses AI bots to store data from reconciliation, investment reporting and audits in a “data warehouse,” said CEO Tanmai Sharma. Collation can standardize structured data from a variety of sources, including portfolio, CRM and general ledger systems, even if they have their own silos, he said.

A frustrated family office member, Sumit CEO Alexandre Lin said he founded the software company to simplify family office accounting. Sumit integrates with Addepar, streamlines workflow and reduces dependency on manual paperwork and Excel and QuickBooks, Lin said.

AltExchange manages and reports on alternative investments and specializes in data aggregation, reconciliation and streamlining documents, said CEO Kareem Hamady.

According to CEO Gary Langham, After Tax Reporting Solutions, software is the only third-party data integration technology for after-tax reporting on Addepar’s performance reporting platform.

K1x specializes in reducing back office clutter by moving, integrating and automating data in K-1, K-3 and 990 filings for alternative investment data distribution, said CEO John Lamancuso.

Mohamed Elzomor said he came to understand the “lifestyle challenges” of his wealthy clients as a personal trainer. He went on to co-found Nines Living and developed a “household management” platform app to centralize staffing issues and tasks ranging from car care to appliance warranties.

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