By Nicole Eberhardt, CEO of Ledgex
It’s been a roller coaster of a ride for the financial community lately, and odds are the coming year will bring more of the same. Many experts see a bear market on the horizon, which will put investors under even more pressure. One of the thorniest challenges is figuring out the best strategies for ultra-high net worth individuals (UHNWIs), a segment expected to increase by almost 30% over the next few years.
In such a volatile market, technology and data are essential to success. Family offices in particular need to up their game. Many still use a cobbled-together infrastructure relying heavily on spreadsheets, various portfolio software platforms and general systems, with reporting available only on an ad hoc basis. An ideal fintech solution would handle all these functions and enable financial managers to expand portfolio volume and improve performance.
In the following, we’ll look at the technology and trends that will be fueling family offices in 2023.
Harnessing the Power of Data
Data is incredibly valuable — provided it’s complete, up-to-date and accurate. When it’s reliable, data can support strategic insights and smart decision-making. But most organizations, and family offices in particular, don’t have the time or resources to cope with the overwhelming amount of data now available. They need to adopt a sophisticated platform with software that can manage data and optimize its value.
Rather than using separate accounting systems for each type of investment, all with different formats, family offices will increasingly enlist the latest data engines to gain a clearer view into disparate data in the year ahead. Purpose-built software can address general ledger and hierarchical ownership structures, drilling into specifics of different investments and pulling out the most relevant information. With timely reports and insights, managers can gain a high level of confidence and better understanding of the data to make decisions that’ll enhance returns.
Choosing the Right Partners
While there’s no question that technology upgrades are essential, it’s challenging to implement them without significant resources. Most family offices run lean operations with minimal headcount. Given the light staffing, they tend to deal with many outside service providers, averaging 40 or more. Some of those vendors have been pitching all-in-one solutions for managing complex asset portfolios. These often sound great in theory, but in practice, they may not deliver all they promise. That’s when users learn a tough lesson – no single platform can do it all. In fact, a single point of failure spells disaster when it’s the only platform deployed.
Partnering with outside experts is a sound strategy for 2023, as long they can provide a solid plan and a reliable solution. The emerging class of purpose-built platforms with data cores engineered for multi-asset class portfolio management and accounting are a smart and safe option for family offices. They handle both processes expertly which is a huge plus if top managers don’t have the skills or in-depth knowledge required to optimize systems when switching from spreadsheets and QuickBooks.
Taking the time to find the right service providers will pay off both in day-to-day operations now and as the business expands. To ensure positive outcomes, consider bringing in consultants, particularly for business process review and strategic goal setting. Look for ones with proven family office expertise, deep technology knowledge, and a high-touch approach so they, and all of your staff members, really understand your business and can best-position it for success.
Given the wild swings in the market, many investors nowadays are seeking alternative vehicles and diversifying across asset classes. Instead of sticking with individual stocks or funds recommended by a wealth advisor, they’re considering other avenues.
Some family offices are putting resources into specific businesses, much like a venture capitalist. Others are embracing impact investing, funneling dollars into environmental, social and corporate governance (ESG) ventures with the goal of bolstering their philanthropic efforts. The arts, environment and social justice arenas are among those attracting investors more interested in supporting causes than in netting the biggest returns.
Fintech systems need to be able to cope with these complex and evolving portfolios. Whatever the vehicle, it will be vital for family offices to choose software designed for managing these broad range of assets. Modules for functions such as private investment tracking are a plus. Also important will be a high degree of automation coupled with a user-friendly interface that won’t overwhelm financial executives without an IT background.
Security and Privacy
Like businesses of all types, family offices have been moving to the cloud. However, they’ve been doing so more slowly than other sectors. That’s due in large part to worries about privacy and security. Those are certainly legitimate concerns. More than one in three North American family offices suffered at least one cyber attack during the previous 12 months, according to Campden Wealth’s North America Family Office Report 2022.
No doubt, we’ll be seeing even greater activity by hackers.
Family members tend to be especially aware of the risks of exposure, given their tendency toward anonymity, rather than self-promotion. But that shouldn’t deter them from embracing the cloud, as well as SaaS, in 2023. Further, they should digitize with all speed, while paying special attention to both data protection and privacy.
That calls for instituting standard best practices on the security front, including strong passwords, ensuring credentials aren’t shared or reused, as well as dual-factor authentication. Also recommended in the year ahead: a single sign-on infrastructure and a partnership with a cybersecurity solution provider.
Outside consultants and outsourcers with expertise in fintech for family offices can be valued partners when it’s time for a transition. They can help identify processes that are limiting growth and put in place state-of-the-art systems that will allow for future expansion. Establishing the right architecture now will go a long way to ensure survival and promote success in the years to come — regardless of how volatile the market becomes.
Nicole Eberhardt is CEO of Ledgex, creators of a platform built by investment office pros to solve multi-asset data quality and usability challenges. Called Ledgex Pro, the solution enables investment firms to confidently and successfully manage complex asset portfolios with game-changing improvements in data accuracy, transparency and timeliness. For more information, please visit www.ledgex.com.
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