Family Office

Three Trends in Next Generation Family Office Technology

Craig Iskowitz April 3, 2019

Three Trends in Next Generation Family Office Technology

Craig Iskowitz, a writer who runs a consultancy advising family offices, recently attended FWR's fintech summit in New York. Here is his account of the discussions.

The following article is by Craig Iskowitz, who is founder and chief executive of Ezra Group. Ezra Group, is a boutique consulting firm providing technology strategy advice to small- to mid-sized family offices, UHNW RIAs and private client divisions at large wealth management firms. Craig has over twenty years of experience helping clients make sound technology decisions that activate growth opportunities and deliver elegant client experiences. Craig attended the recent 4th New York Family Office Fintech Summit 2019 hosted by Family Wealth Report. He is the publisher of the Wealth Management Today Blog (, which provides in-depth analysis, interviews with industry leaders and unbiased product reviews.  

Craig Iskowitz


When it comes to multi-family offices, single family offices, and ultra-high net worth divisions of large wealth management organizations, they tend to be torn between two questions: "Should we innovate?" and "Should we not innovate?"  If they choose not to innovate, they risk going the way of Sears or Blockbuster. How can the next generation of family wealth organizations succeed?

A panel of experts shared their experiences answering these questions for their private wealth clients at the 4th New York Family Office Fintech Summit 2019 run by Family Wealth Report.

The sluggishness of technological change in the private wealth industry is legendary. It's moving so fast in the rest of the world that we might see drones dropping off a burrito at a client's house at the same time a Fedex driver hands them an overnight envelope from their family office, joked Doug Fritz, president of consulting firm F2 Strategy. Wealthy clients are demanding innovation and the industry must move in that direction, he insisted.

The vast majority of firms that Fritz is working with are still struggling with the basics.  It's impossible for them to leverage artificial intelligence since they haven't yet moved away from paper-based processes, he explained.

Will single family offices go out of style?
In general, single family offices are often slower to adopt digital technology than multi-family offices since they consider it more of an expense, Fritz noted. This is especially true for those that are still controlled by first or second-generation family members. If they do not change, they risk losing the more technically adept third generation to the MFO down the street that offers a more modern client experience.

A recent survey of 103 family offices showed that while the average company age was 17 years, they ranged up to 88 years. Over many decades, a family’s wealth will cascade over increasingly large and diverse generations which generate more entities and increased accounting complexity.

SFOs are more likely to select advanced technology for its ability to increase communication with their family members, while MFOs are looking for technology that can help them scale, stated Seth Brotman, CEO of artificial intelligence software provider Canoe Intelligence.

Brotman, who formerly worked for a venture capital firm, insisted that SFOs will not go the way of Blockbuster or Sears, because wealthy families will always need the type of personalized services that they offer. However, their integration and implementation of new technology solutions will continue to evolve.

Each generation in a family has different needs and unique problems that the SFO must address, observed Tricia Haskins who is VP of Digital Strategy & Platform Consulting at Fidelity Institutional. This is why the SFO won't go away even if the later generations demand better technology.  These firms will continue to provide value via their deep understanding of their family members as well as their ability to apply technology to all parts of the business, she stated.

Providing a frictionless experience
According to Darren Berkowicz, managing director, SS&C GlobeOp Fund Services, they reduce friction by providing things such as straight-through processing for marketable securities, daily book pricing on a T+1 basis, and leveraging artificial intelligence to reduce the effort needed for reconciliation.

There is a tremendous amount of friction around manually extracting and populating all the necessary data sources, especially related to alternative investments, noted Brotman. Their software can significantly cut down manual work by systematically ingesting, categorizing, extracting, and validating data that is then fed into all of the firm's output such as capital account statements, call notices, and reports, he said.

Enhancing these common processes with software-based frameworks will allow staff to have more time to put towards value-added services, Brotman emphasized.

Inefficient processes generate massive amounts of inefficient communication between staff and external parties to resolve the inevitable problems that arise. This often takes the form of email being sent back and forth like ping pong between the people involved which do not have proper review or controls around them, Berkowicz explained. Properly configured systems with pre-defined and controlled workflows and messaging should reduce this inefficiency almost to zero. Fewer costly errors from miscommunication is also a benefit.

There are certain cases where process friction can be beneficial, Haskins pointed out. Manual call backs to verify large wire transfers and physical check signing can both reduce the risk of fraud.

Certain classes of alternative investments complicate the investment process by forcing competition among firms who are vying to invest in the next funding round, Haskins explained. Multiple tiers of data generated by these investments are difficult for family offices to ingest and they do not have standard delivery cycles so data is arriving at different times.

Some of Fidelity's clients worked with a group of fund families and set up an external firm as an interested party that acts as a central repository for complex alternative data, Haskins stated. They understand it better and know where it's going. They are also able to enforce a consistent methodology around when the data is received and when it goes into the system.

Private equity funds will sometimes price at 30 or 45 days but then re-price after 90 days, which forces the office to go back and update all of their data. Those clients that have implemented a consistent pricing methodology are the most successful in this area, Haskins reported.

Deeper ESG engagement
ESG (Environmental, Social, and Governance) investing is a term that is often used synonymously with sustainable investing, socially responsible investing, mission-related investing, or screening. ESG has become more accepted in the UHNW/HNW world and has moved into the current zeitgeist, according to Doug Fritz from F2 Strategy.

(I was very excited to write this blog post because it's my first one with the word "zeitgeist". Thanks Doug!)

Wealthy families are discovering that there's more to do with your money than just earning a return, noted Jonathan Hudacko, CEO of investment firm Just Invest. And it is not necessary to give up performance in exchange for doing good. Investing has causation results in the outside world and enables expressing your voice without always sacrificing returns.

A report co-authored by the University of Oxford and Arabesque Partners argues that sustainable investing strategies may actually offer investors potential for superior risk-adjusted returns. In conducting the research, Oxford and Arabesque concluded that “80 per cent of academic studies found that stock price performance is positively influenced by good sustainability practices.” It also noted that “solid ESG practices results in better operational performance of firms, ultimately leading to higher cash flows.”

An important factor in analyzing the return of ESG investing is the tax benefits provided by co-mingled vehicles.  End investors may not see the expected annual return at the top level, but on a net dollar basis, post-tax advantaged, it might provide what they were looking for, Hudacko observed.

According to Haskins, ESG investing can help SFO/MFO/RIA financial advisors move up the Bains Elements of Value stack towards the top, which is fulfillment.  One of the things that family offices focus on a lot is philanthropy, since it is another way to achieve fulfillment.

Digital expectations
Many wealth management firms have unrealistic expectation about the gap between their expectations for digital tools and the flexibility of those tools to support the unique business processes that exist at every firm. Software is not infinitely configurable, at some point you have to adjust your processes to fit the way the application works, noted Fritz. If every firm thinks that they're a snowflake with non-standard processes and that no software vendor can support them without significant (and expensive) customizations, then they cannot blame the software vendors for the (perceived) lack of off-the-shelf digital options.

Private wealth firms should not fear moving their critical systems into the cloud, advised Hudacko. The risk of losing equipment to fire or theft is too great to maintain physical servers at your office. Cloud-based applications can be automatically backed up and offer military-grade security that will protect data from intruders, he noted.

Digitizing your firm also doesn’t mean you have to launch your own robo-advisor, Haskins pointed out. Digitizing means leveraging the right technology to improve what you’re already doing well. It means increasing the scope of your communications by having some automated services that are available 24/7 that enable interactions with your clients where they are at that moment, rather than where you want them to be, she noted.

One way to measure how well an office is adapting to technology is by calculating their Digital Quotient (DQ). DQ is a measure of how well technology is implemented across all aspects of the firm: culture (most important), strategy, tools and people, Haskins explained. It was created by McKinsey and their research has shown that firms with high DQ drive 5X growth versus their peers.  in their respective industries. DQ can apply across all aspects of a firm’s value stack.

Family office technology
The panelists shared a few final words of useful advice for family offices that are striving to become winners in technology.   

•    Hudacko - Prepare for your family's next generation. They have a very different perspective on not only the use of technology, but how their wealth should be managed.

•    Brotman - Embrace new technology that helps you to maintain your identity.

•    Haskins - Encourage a curious culture. "In the beginner's mind there are many possibilities, but in the expert's there are few." - Shunryu Suzuki

•    Berkowicz - Partner with the right technology vendors. Begin with the end in mind. Start with your business requirements and work your way back to identify the data you need to facilitate delivering your value to clients.

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