Finding a software solution that integrates data cross many functions is still a top technology concern for family offices, a survey shows.

Finding a software solution that integrates financial data across multiple functions is still a top technology concern among family offices, along with staying current but avoiding the “bleeding edge” and financial reporting. But security worries, which apply both to data itself and how it is communicated, are now mentioned “just as often as integration,” according to the 2013 FOX Family Office Benchmarking: Technology in the Family Office study. 

“Security used to be number five on the list and some of these [other concerns] are just inherent in the topic of technology. For example, ‘staying current while avoiding bleeding edge’ will consistently come up when you ask anyone about technology challenges. And finding the right solutions is a perennial challenge for family offices because they’re always struggling to find vendors that understand their situation,” Jane Flanagan, senior consultant at Family Office Exchange, told this publication.

Interestingly, confidence regarding the security of internal systems and external communication of financial data is “high,” and this, the report suggests, is being driven by vigilance. For example, 71 per cent of 130 respondents don’t send financial information to clients’ mobile devices. “It’s not just technology – a lot of it is your approach and awareness,” Marv Pollack, managing director, marketing and strategy, told Family Wealth Report.  

However, an overwhelming 79 per cent of single family offices don’t employ dedicated technology professionals, compared to 44 per cent of multi-family offices or wealth advisory firms. Small family offices are more likely than large offices to rely on external resources when it comes to system maintenance and technology support (62 per cent versus 33 per cent). “When the family still owns the operating business, the office often relies on the IT resources within the company,” FOX said.

Cloud technology

Flanagan told FWR that this is the first research study where FOX has asked specifically about cloud computing. Use of cloud technology - which enables businesses to store and access confidential data via the internet - is growing, with family offices citing system backup and document storage as their top use of cloud technology. After this, email (25 per cent), software (24 per cent) and remote access (18 per cent) were the most common uses.

Looking at exactly how many family offices are jumping on the cloud bandwagon, 80 per cent of multi-family offices said they have “embraced the cloud in some fashion,” while over half (54 per cent) of 125 respondents answering this question said they don’t use it at all. The uptake is stronger among smaller family offices, with 57 per cent reporting that they use cloud technology, compared to only 24 per cent of large offices (defined with at least seven full-time employees).

Many people in smaller offices are “wearing many hats,” Pollack said. “I think the lack of a full-time IT person is one of the factors driving the higher use of ‘the cloud’ among small family offices.”

Smaller offices - which have fewer staff and a narrower budget - often try to do the same things as a big office but with minimal resources, Flanagan noted. “The cloud gives them a really cost-effective means of accomplishing some of those goals,” she said.

In terms of operating efficiencies gained from using cloud technology, “seamless remote access” emerged as the prevailing benefit (39 per cent) among 49 respondents, followed by security/guaranteed backup (24 per cent), cost savings (18 per cent), no hardware limitations (14 per cent) and time savings (12 per cent). While FOX said respondents were unable to give specific figures on the cost savings aspect, many participants cited “better utilization of resources and a higher quality work product as the return on this investment.”

Concerns about security and privacy emerged – somewhat predictably – as the biggest factor holding back family offices from using cloud technology. “I thought that number would be higher,” Flanagan said.

“It was interesting to see that while just under half are still concerned about privacy and confidentiality, the rest of those people who haven’t done it yet aren’t necessarily opposed to the idea. They either have just invested in servers and hardware and aren’t in a position to make that new commitment, or, it’s on their list of their things to do but they just haven’t gotten there yet. I do think that we will continue to see use of cloud technology grow in the family office world.”

Disaster recovery

Todd Luchik, marketing communication manager at FOX, said he thought it was significant that there has been much more emphasis on disaster recovery since Hurricane Sandy; indeed 97 per cent of all respondents have, or are, putting a process in place for disaster recovery.

Pollack added: “What Sandy exposed was the fact we had a whole region that was without power and fuel, trees down; a lot of the disaster recovery plans depend on employees working from home. But if the server is down in the office because there is no electricity, employees can’t reach their data…even worse, as in the case with Sandy, is because homes were without power, and people were dealing with their own storm issues, there was no way to implement the plan.”

Certainly, family offices are talking about “the cloud” more and more. “But now they have to weigh two different challenges – one disaster recovery, the other the security of the systems and data. I think there might be some kind of tension between those two priorities,” Luchik said.   

Single family office technology costs

Since around 2005, single family office technology costs have averaged at between 3 and 5 per cent of the family office budget. In FOX’s latest study, 60 single family offices provided a breakdown of their technology costs and it has emerged that the average cost for this group is 5 per cent for both small and large offices. Worth noting, however, is that large offices tend to spend a bit more on consulting and data/research services.

Overall, software represents the biggest chunk of family offices’ technology budget (28 per cent for small offices; 27 per cent for large offices). This is followed by outsourced services and hardware (22 and 20 per cent respectively) and hardware (16 and 15 per cent). Mobile technology consumes the smallest percentage of the technology budget, at 4 and 3 per cent.

When asked about technology spending over the next 18 months, software tops the list of planned purchases at 44 per cent. Next is hardware (30 per cent); “none” or “very little” (19 per cent); cloud technology (10 per cent); electronic devices (7 per cent); phone system or audio/video (6 per cent); and website (4 per cent).

Does the perfectly integrated solution exist?

According to FOX’s report, an overwhelming 88 per cent of 110 respondents rely on Excel as the tool that enables them to bridge multiple packages, while 60 per cent of 103 rely on it to integrate data and create consolidated client reports.

Even the most sophisticated offices that have outsourced much of the work are still relying on MS Excel to “stitch it all together,” the firm said.

Of course, all family offices are after sophisticated software that is easy to use and not costly to operate. But the size and nature of families’ investments and their use of trusts and partnerships, for example, will undoubtedly affect their choice of software.

“What works for the business-owning family with little liquidity will not work for the multi-generational office that invests in private equity,” FOX said.

Pollack added: “Needs are so varied - it’s hard because of the flexibility required by the system to have reporting appeal to every customer and accommodate every business/investment approach. It’s a tall order and may just be impossible.”

Ultimately, technology is driven by the priorities and needs of the family it serves – there is no “right” answer. 

In the words of FOX: “When it comes to investing in technology, the leadership of the family office needs to decide whether it will invest in solutions that will optimize its people or invest in more people to do the best they can with affordable solutions.”

Sample

Of the 130 respondents, 112 were single family offices and 18 were multi-family offices or wealth advisory firms. The size of their liquid investment portfolio ranged from between $25-100 million and up to $1 billion or more.