Family Offices Must Maintain Technology To Address A Shifting Landscape Or Fall Behind
2023 will be a year to watch for fintech and family offices. While the numbers of ultra-high net worth clients and family offices are rising, a bear market, data challenges and a widening technology gap present obstacles. If family offices don’t focus on updating capabilities in the months ahead, a boom could quickly turn into a bust.
The following offers predictions for 2023, technology trends to follow and areas to watch, as well as advice to help family offices prosper next year.
Family offices are experiencing growing pains: They need technology to scan increasing volumes of data for decision-making insights. At the same time, they must do more with less resources, so need scalable solutions. Combined with the digital demands of millennials and Generation Z as they move into leadership roles – both as clients and family office executives – it’s clear family offices need more sophisticated platforms.
Family offices must realize that if they fail to solve these growing pains now, not only will they miss a rare market opportunity, they’ll find themselves farther down the road in a weaker position with these gaps still looming – that is, if they’re still competitive.
As clients look for alternative vehicles to combat market volatility, a trend is forming for family offices. In lieu of purchasing stocks or funds, some are directly investing into companies. Groups are emerging to connect families with these opportunities, which in turn enables family offices to explore a venture capitalist role.
Also, as ESG interest rises, many family offices will turn to impact investing in the year ahead to help clients build their philanthropic legacy. Impact investing directly addresses areas such as social justice, environmental issues and protection of the arts.
Though for-profit companies following ESG initiatives may reduce their carbon footprint, offices and clients hope to achieve better results by supporting efforts focused on a specific cause rather than financial return.
Direct investing requires purpose-built software, so family offices should ensure that their technology platforms include modules to address this.
Hype And Help
During the past year, the industry explored all-in-one solutions to manage complex asset portfolios. This would benefit family offices, which typically have few employees but engage an average of 40 service providers. The all-in-one pitch turned out to be more hype than technology, leaving customers to find out the hard way that no platform can do everything.
At the same time, purpose-built platforms are emerging – with data cores designed for multi-asset class portfolio management and accounting – enabling family offices to handle both of these demanding areas effectively.
Family offices should enlist the technical expertise of consultants and business process outsourcers in record numbers in 2023. With technology pivotal amid the atmosphere of rapid change, senior management doesn’t have the time or depth of knowledge for tasks like optimizing systems when transitioning from spreadsheets and QuickBooks.
When planning a technology implementation, family offices should examine the architecture of their business processes to harness advancements, prevent recreating capabilities they’ve outgrown, promote efficiencies and prepare for future developments.
Privacy And Protection
Last, but by no means least, family offices lag in moving to the cloud due to concerns over privacy and security. The threats are real: In Campden Wealth’s North America Family Office Report 2022, 37% of North American family offices surveyed experienced one or more cyberattacks over the prior 12 months. But the pandemic and widespread SaaS adoption have demonstrated that an in-house data center is as equally susceptible to threats as is the cloud.
Family clients are particularly sensitive to exposure, preferring anonymity. So, while it’s time for family offices to shrug off their reluctance and embrace the cloud and SaaS in 2023, they must think more about privacy and data protection, including deploying more robust, single sign-on infrastructures, accompanied by two-factor authentication, supported by partnership with a cybersecurity solutions provider.
Nicole Eberhardt is CEO of wealthtech firm Ledgex, creator of a platform designed to solve multi-asset data quality and usability challenges for portfolios