For all kinds of reasons, single-family offices have not rapidly embraced technology, although Covid-19 has jolted some into action. We talk to a variety of individuals about the market.

Single-family offices are often founded by people who have sold a firm or have quit the daily business grind. They aren’t happy to receive sales pitches from tech vendors and others trying to make money from the SFO space. 

That’s understandable. Unfortunately, however, single-family offices, collectively overseeing trillions of dollars in assets, are targets for thieves, and also need to embrace digital technology to remove paper-based processes that can also lead to costly mistakes.

Technology companies, consultants and lawyers who talk to SFOs know how difficult it is to get these discreet organizations to talk about back-office efficiencies, investment platforms and other business requirements.

So what’s the best approach? 

“If any service provider acts like the proverbial 'used car salesman' s/he deserves this wariness – and not getting the business! As vendors we must be consultative and wholly focused on their needs. This will defuse this feeling and move toward win-win,” Mike Slemmer, LP sales director, Dynamo Software, a firm that can be found here, told Family Wealth Report. 

One of the largest challenges, Slemmer said, is for family offices to move away from the “unsecure and very inefficient tools of the 90s” – i.e. QuickBooks, Excel, and other programs – which he said “simply cannot scale for today’s complex investment and accounting needs.”

But the drumbeat of noise around new technology, including areas such as Artificial Intelligence, is going to be hard for even the most reluctant SFO principals to ignore. 

“I do think that AI, robotic processing and the superior integrate-ability of systems will force even the most change-averse FO to finally move from those systems of the 90s and embrace a more holistic approach. It won’t be that one system has it all as these advances make integrating best-of-breed (individual) systems much easier to talk to one another,” Slemmer said. 

A person with an insight into the challenge is Rob Mallernee, founder and chief executive of Eton Solutions (see an interview about the business here.)

“If I look at most family offices, then almost all are run by lawyers, accountants or a CFA. They have little interest or experience about the mid- or back-office technologies. These are smart people who realize they need to have technological skills to distinguish from one system or another. There is a fear they have of making costly mistakes,” Mallernee said. 

“It is very hard for them to get up to speed on this and you are typically trying to do all this with a small team of people,” he continued. “We think 'family office-as-a-service’ is a huge deal down the road and it is probably where we will end up.” FOs will, with this model, retain control and authority but many specific functions will be outsourced. “We think this is going to be the way for the future,” he said. 

What’s at stake
The industry has a challenge. According to a research study from Family Wealth Report in 2019, FOs waste huge chunks of the working week on manual workarounds as they struggle along with generic software for accounting and investment analysis. They spend a fifth of working hours on manual processes on average – rocketing to two-fifths for larger ones – because they are trying to run high alternatives allocations and scores of legal entities through multiple non-specialist systems. With multi-family offices, they allocate 44 per cent of assets to alternatives and single-family offices devote 60 per cent, with the latter’s greater adventurousness underscored by an average allocation to private equity or hedge funds of 21 per cent against 17 per cent, and direct standing at 27 per cent for MFOs and 38 per cent for SFOs.

Some areas of spending are easier for FO principals to appreciate than others. Cybersecurity attacks have a way of focusing minds, although often only after a breach has happened. 

“When it comes to security and risk management, families sometimes choose to downplay or self-diagnose threats unless something `bad’ has happened in the past (cyber breach, theft, stalking, etc.),” Edward Marshall, global head, family office and high net worth, at international law firm Dentons, told FWR. “Combined with the pressure for rapid response time on family requirements and confusion around what security is (or should be) `actually necessary’, it’s a recipe for potential problems,” Marshall said.   

“Families who may still be adjusting to the reality of their wealth may initially underestimate the ease of how an open source plus internet search can reveal to others much about them,” Marshall continued. 

“Coming to terms with the reality of new wealth can be a challenge, especially if the liquidity event is large and occurs in a short period of time of running a business.  Families unaccustomed to the unwanted attention that significant wealth can bring sometimes underestimate the protections they should take as to business partners, service providers, advisors, employees, and others, until an `event’ occurs.

“This goes to the heart of the question on hesitancy around making sweeping changes in the components, strategy, and operations of their family office.

“Some of the challenges that families want to solve with setting up and having a family office are quite mundane. Let’s face it, there are many reasons to build your own single-family office or `rent’ the services of an MFO but, at its core, families take this step to make their lives easier,” Marshall added.