Complain as they do about technology, financial advisers don't realize how good they have it compared with managers of family offices.
Complain as they do about technology, financial advisers don't realize how good they have it compared with managers of family offices.
As a consequence of the broad, yet extremely personalized, services they provide to wealthy clients, family offices find off-the-shelf adviser technology largely inadequate. Without considerable (and expensive) tweaking, most advisory systems cannot generate on-the-fly net worth reports for random groupings of relatives, keep track of the multiple insurance policies held by family members or allocate shares of a private jet — all part of a day's work for a family office.
While few advisers face the specific challenges of family offices, the way the managers of these firms approach technology can provide useful lessons for advisers dealing with the everyday wealthy.
“When it comes to family offices, we see a pretty extensive expansion of data points beyond what a typical financial adviser needs to track; sometimes they want to see data across a multigenerational family, and sometimes they want to roll in all the [family's] businesses as well,” said Bruce Moulton, a principal with Moulton Strategic Partners Inc., a Flower Mound, Texas-based technology advisory firm for financial advisers.
One of the data points he recently worked on at a family office entailed reprogramming its customer relationship management system to deal with private jet shares. The large family office that retained Mr. Moulton asked not to be identified.
But the customization that family offices demand comes at a price, noted the New York-based Institute for Private Investors, a service organization for family offices.
“Our members are wrestling with an increasingly complex range of portfolios. These require a very expensive and time-consuming level of customization in terms of technology that can be resource-intensive,” said Kristi Kuechler, senior managing director of the institute.
The customized systems used by family offices compile data from multiple sources and interpret them in a more sophisticated manner to better serve the needs of extended family members who create and inherit wealth, and manage complex business interests.
Mr. Moulton said that even seemingly simple needs at family offices may require a custom solution. One client firm, for example, wanted its own type of letter of authorization, which allows the family office to act on behalf of the client when moving money from one account to another. Since some families have dozens of investment and banking accounts, creating and managing the rather simple document was not very simple.
The solution Mr. Moulton devised used the firm's XLR8 customer relationship management system, itself an adviser-oriented version of Salesforce.com's CRM system. Mr. Moulton's firm is the creator of XLR8 and is a reseller of San Francisco-based Salesforce.com.
“Controlling the creation of these letters in the CRM system minimizes the chance for errors, but it also documents the existence of the LOA for others in the firm so they don't have to go rifling through a document management system or filing cabinet to find the signed copy,” he said.
At Harvest Capital Advisors Inc. of Bellevue, Wash., a multifamily office where client net worth typically is in the $5-million-to-$25-million range, managing principal Chuck Royer said technology initiatives are “a constant work in progress.”
Recently, the firm further customized its Junxure customer relationship management system, from CRM Software Inc. of Palm Beach Gardens, Fla., and its Access databases, from Microsoft Corp. of Redmond, Wash., rather than invest in new systems. To save time and plan for the future, Harvest also installed ScanSoft PaperPort Professional, a document management software package from Nuance Communications Inc. of Burlington, Mass., making all scanned files accessible through the CRM system.
“Building up the systems has taken us a lot of time, work and money,” Mr. Royer said, adding that the firm's professionals and clients are happy with the results.
Harvest Capital's technology expenses add up to more than $40,000 annually, of which $4,000 goes for its website; $5,000 for consulting fees related to infrastructure maintenance, including server upkeep; $5,500 for software licenses; and $27,000 on contract labor related to technology customization, such as programming its Microsoft Access databases.
One area that is receiving special attention of late is security, according to the firm's operations manager.
“We have several four- and five-generation client families for whom security and maintaining confidentiality is a very big issue, even within the family,” said Sarah Royer, who heads an operations and compliance team that includes eight full-time, two part-time and one contract employee.
Among her current projects is completion of an online document lockbox that will cost the firm about $1,400 a year. Ms. Royer said that the peace of mind the lockbox will provide both clients and advisers is well worth the price.
Clients and professionals outside the firm granted permission will be able to access documents via the Harvest website through a secure socket layer (known by its acronym, SSL, and recognized on the website address by the prefix “https” rather than “http.”)
Ms. Royer and those she designates will be able to manage document access behind the scenes. For instance, a family's accountant may be granted access only to tax-related documents, while an estate attorney could be given access only to the family's trust documentation or wills.
To reiterate the seriousness with which the company takes security, Ms. Royer described another project in the works: a “lockup” program for the firm's laptops.
“If one of our laptops is lost or stolen, any attempt to access data will result in all the data being automatically destroyed,” she said, noting that assuming responsibility for the personal data of multiple families is not something to be taken lightly.
E-mail Davis D. Janowski at djanowski@investmentnews.com.
