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Consider the obstacles facing family and multi-family offices: increasingly sophisticated security threats that require highly specific skills and knowledge to manage; complex client needs and demands; new, non-traditional asset classes; and significant generational changes as a result of the great wealth transfer. Family offices must stay on the pulse of the latest technology to remain relevant.
As this perfect storm of macro trends gathers, many family offices find themselves in the unenviable position of being right in its path with no way to respond. Because their focus has always been on wealth management expertise and client-facing responsibilities, keeping their technology stack current gets deprioritized, leaving them with legacy solutions that aren’t equipped to handle modern challenges.
When family offices realize that future-proofing their business requires a technology solution built to handle modern risks and evolving client demands, they’re faced with two choices: invest in not only the tech stack, but also the resources and staff necessary to implement, maintain and consistently re-evaluate in-house, or outsource those needs to a third-party partner.
To make the right choice, family offices must be brutally, candidly honest with themselves about their priorities, budget and in-house capabilities. Taking on the technology burden is not trivial. It requires finding the right solution in the first place – one that offers real-time, cloud-based reporting; data storage and management; risk mitigation and compliance capabilities; and tools that empower the digital-first client experience the next generation of investors demand.
But even after a family office has vetted, selected, implemented and trained their staff on a new technology – a process that could take months or years to complete – the work is never done. Technology, investor expectations and the world at large are constantly changing, meaning the family office is also responsible for regularly reviewing the systems they’re using to ensure they’re not falling behind or outgrowing their capacity.
For firms that have always focused on wealth management expertise and client service, managing technology in-house demands significant time away from those core competencies, or a serious investment in additional in-house staff.
Outsourcing solves both the time and the staffing challenges. Leveraging a third-party partner to handle operations may not feel like the natural first choice for family offices, who are used to retaining control over the entirety of their practice. And in some cases, there’s reason to be wary of outsourced solutions. No two family offices are the same, so a rigid, one-size-tries-to-fit-all outsourcing provider won’t be equipped to meet the unique needs of each family-office client.
Family offices considering outsourcing should evaluate a service partner rather than a traditional technology stack. The real power of outsourcing comes from working with a team that can enrich, aggregate and manage the complex data structures characteristic of family offices, while providing best-in-class technology to surface the exact data views necessary to make critical business decisions, as well as to allow full transparency into the work being done behind the scenes.
Customization is also key. A family office may want to maintain some tasks in-house while offloading others, like cumbersome back-office tasks and complex regulatory obligations – and not every outsourced model will allow for that level of flexibility.
The right outsourced partner will do the work of monitoring the latest trends and investor needs for the family office, so they never have to worry about whether their firm is equipped to weather the next storm of industry changes.
Patrick Murray is the chief executive officer of STP Investment Services.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
