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Creating an efficient back office for your family office

Managing its myriad responsibilities requires a deliberate, thoughtful approach — and technology that’s tailored to your needs. Here are some reasons outsourcing the job could be an answer.

There’s no such thing as a “typical” family office — each one is a reflection of the wide range of sizes, backgrounds and complexities seen in today’s high-net-worth families. But all family offices have one universal objective: to operate seamlessly and efficiently across multiple fronts while fulfilling the founder’s vision. 

“It can help to view your family office as a company — one that’s dynamic and constantly evolving,” says Charles Simonds, Family Office consultant at Bank of America Private Bank. After all, its functions include more than just investment management, tax planning and philanthropy. It might be called on to coordinate with a family-held business or manage complex assets like real estate or art collections. And it must also navigate intrafamily dynamics, pay household bills and coordinate multiple residences, yachts or even a private plane. 

“A family office is, fundamentally, a way of serving the family’s members, helping to sustain and extend their wealth for future generations,” Simonds notes. But an operation this complex requires a substantial investment, he adds. “The average cost to run a family office in the U.S. is about $2.3 million a year.1 And when you add in outside costs — such as paying for specialists and service providers — it can come to about $4.2 million a year.1 It’s a major enterprise, so you really need to organize and operate it that way.”

That’s why a well-built family office should consider embracing a business-like infrastructure — one component of which is to rely on strategically chosen technology that allows officers and employees to easily manage administrative back-office functions. To establish and run a family office that’s focused on the present and ready for the future, ask yourself the six key questions outlined in the box below and consider these best practices.

Close any technology gaps

In today’s digital-first world, no one can afford to take technology for granted. Yet many family offices could use an update, notes Joshua Rief, Family Office strategist at Bank of America Private Bank. “In some cases, the founders of the family office might be very tech savvy, but the office systems they and their families rely upon could be 10 years behind.” Look at these areas in particular:

Your vendors. Are the companies that supply services and tools to your office using the latest technology? If not, the family office might see problems ranging from inefficient use of its outside partners to software that’s not aligned with the family office’s priorities. One common challenge arises when the family office has added vendors over time, resulting in complex workarounds to mesh old hardware and software with new. When these systems aren’t in sync with each other, problems can develop in data management, reporting and security.

While a multivendor system might work just fine, the question to always ask is whether that vendor network could be stronger, according to Andrew Tyll, Family Office product manager at Bank of America Private Bank. “When you have several vendors cobbled together, that can create potential vulnerabilities that you then have to manage on an ongoing basis.”  

Modernizing an existing set of systems can be time consuming, but by doing so you can eliminate inefficiencies over the long run. In addition, as you upgrade, you might find it makes sense to take a closer look at current processes. An in-depth review with key members of the family office team can help confirm which processes are still serving the family well and whether some require updating or replacement.

In-house systems and software. Some offices may rely on retail software products that aren’t appropriate for the scale of a family office. Or inefficiencies may crop up because systems either aren’t talking to each other or require extra oversight. “It’s generally beneficial to have a more streamlined solution set on these fronts for reasons of control and efficiency as well as security,” Tyll says.

Data aggregation. Access to relevant data is key not only for preparing financial statements, of course, but also for providing family members with visibility into the office’s expenditures, investments and operations. Investing in up-to-date technology that enables the family office to pull together data from a wide range of complex holdings can feel like a heavy lift. But the benefits, Rief notes, can be quickly realized, as the richer data set is paired with sophisticated reporting to empower faster, more accurate strategic planning and analysis.

In legacy systems, valuable information can often become siloed and unshared. But in a successful family office, the right technology can solve those issues, giving family members the big picture so they can make more informed decisions. “In order to make efficient, accurate decisions, you need your data accessible, current and digestible,” Rief says.

Are your vendors the right ones for you?

Regardless of your vendor configuration, you should have a process in place for how to evaluate the strength of each provider. Here are some of the key yardsticks to consider:

  • Financial health of the firm
  • Risk control systems they have in place, including the monitoring of their employees
  • How they manage cyber leaks
  • Procedures for backing up data and how often
  • Disaster recovery routines
  • Ease in adding and reducing resources when needed
  • Frequency of system upgrades
  • Auditors and depth of their operational audits
  • Security in and around their data centers
  • Ability to work with their system from anywhere and on what devices
  • Multifactor authentication procedures
  • Confidentiality, integrity and access to your information

Access controls. Another concern for many family offices can be who has access to what and how that access is established and monitored. “There may be cases where one individual has visibility into 90% of certain operations, but the head of the family doesn’t want to grant them visibility into the remaining 10%,” says Tyll.

Having technology in place that enables system integration also allows for more precise access controls and authorizations. “On the bill pay side, for example, you may need to create various controls over who is approving payments,” says Tyll, “whether that’s based on the individual, the vendor or certain dollar payment thresholds.” 

Implement enterprise-level operations

Having the right technology mapped out makes it easier to create a businesslike infrastructure. The focus should be on these key operational concerns.

Leadership and staff. The complexity of today’s family office makes it critical to put experienced players in key roles. For some operations, that might mean creating a C-suite with a chief executive, financial officer, investment officer and technology officer. Notes Howard Weiss, Family Office consultant at Bank of America Private Bank Family Office, “Every family office of any size depends on layers of accountability and governance.” Even if your family office is relatively modest and hiring a full staff would be unrealistically costly, it’s still important to organize your operation around those roles, employing outsourced staff where feasible.

In smaller family offices, the distribution of responsibilities is likely to depend on the organization’s priorities. “One family office may have a more philanthropic focus,” Weiss says, “while another may focus on direct investing.” Also, depending on the assets and other holdings, tax planning or other expertise may be necessary.

When you’re thinking about outsourcing

Here are some key issues that can serve as guidelines for arriving at outsourcing decisions:

  • The expertise required
  • Frequency of needed function
  • Initial overhead required
  • Availability of backup resources and provider resources
  • Ability to restaff key positions
  • Future capital to maintain and upgrade an in-house system
  • Privacy and control

Accounting and payments. “Gone are the days when it was enough for a family office to hire a well-qualified CPA,” says Simonds. However, as the needs of most modern family offices have grown in sophistication, accountants with the right level and kinds of experience are in short supply. “In the current market, you’d be hard-pressed to find someone with 10 or 20 years of relevant experience,” Simonds says. 

One way family offices might consider solving this is through technology, especially digital solutions that can automate certain processes and establish a platform to handle receipts, payments and more. As cloud computing becomes easier and more secure, systems that employ it are more readily available to family offices. Says Simonds, “Some families have yet to look into these next-level options, but they can be game changers.”

Risk management. Like any corporation, family offices need to regularly assess if their risk management approach supports their primary objectives around growth and wealth conservation. In a digitized world, this increasingly means families should consider how many people can access accounts and data and other critical information.

As Simonds notes, any such plan needs to serve and support a group whose tech sophistication can vary widely — from those who access everything from their mobile devices to others uncomfortable with much more than email. “Your strategy has to account for the person who needs to place a phone call to move money around because that’s how they’ve done it for 30 years as well as for the person who’s fully digital,” Simonds says.

Decide which functions to outsource and which to keep in-house

As their operation becomes increasingly intricate, a growing number of family offices are deciding to outsource aspects of their day-to-day responsibilities. Determining which roles and functions are kept in-house and which are given to outside vendors can be tricky, owing to the differing needs of each office as well as the cost involved in staffing and technology (and, in some cases, brick-and-mortar office space).

While there are no hard-and-fast rules for making these decisions, says Simonds, one key step in the process should be doing a thorough cost-benefit analysis. Families may wish to assess each key role and function to determine which can be performed in-house or easily — and safely — outsourced. As noted above, security considerations should always be part of the equation, and external partners should be vetted accordingly. This goes for technology solutions as well as personnel. (For a list of outsourcing considerations, see “When you’re thinking about outsourcing” above.)

What’s most important is that any investment in technology should support the key objectives and purposes of the family office — without introducing unnecessary complexity or security concerns. It’s important for each family office team to weigh not just the financial cost of different options but also the potential risks. A modern family office, ideally, would leverage all aspects of technology for optimal results. The challenge — and ultimately the reward — lies in finding that path and the right partners to get there.


Does your tech platform support your family’s needs? 6 questions to ask

As your family office evolves over time and new generations take leadership roles, you may need to re-evaluate the tools it uses — both for day-to-day functions and longer-term goals. However, a full-scale tech overhaul can be expensive and disruptive, and may not be needed. To determine how much updating might actually be called for, ask yourself and other stakeholders these questions.

  1. How many consultants and vendors need access? If your office gives several technology providers and independent practitioners (CPAs, lawyers, investment advisors, e.g.) entrée to your technology platform, assess the potential effect on business functionality, security and communications.
  2. How do family members and officers get access to data? Information is a high-value commodity. Consider who has permission for what types of data, and whether the technology infrastructure meets the family’s needs for security, control and convenience.
  3. How easily can data and information be shared within the office? Technology allows you to create sophisticated data sets and generate insights, which can give your family a valuable overview of your operations, expenditures and investments — and enable you to make better decisions.
  4. What are your risk management priorities? If the security of your family office’s data and infrastructure is a key concern, do you have sufficient controls and technology in place?
  5. Should services and solutions be in-house or outsourced? Look at this question in terms of scalability, cost, functionality and security. Honest answers can help you determine whether your family office should consider reducing the number of outside experts and instead work with a single entity that can provide more services on a dedicated platform.
  6. How often should your family office reassess its technology? The frequency depends upon your family’s needs and circumstances, but it’s prudent to schedule regular technology reviews to make sure your family office has the tools it needs to successfully address your family’s objectives.

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