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While family office managers are keenly interested in the advantages AI can bring, many are wary of adopting the technology, primarily for privacy and security reasons. After all, they manage investment holdings, tax filings, estate plans, trust structures, and family details that were never meant to leave the confines of a small circle of trusted staff. Investment managers cannot casually experiment with AI. The risks of exposure are too great.
These concerns are warranted, but AI can still be genuinely useful to family offices without introducing significant risk. So, before adopting any tool, family offices should be able to answer three questions:
- What do we want AI to do?
- What information will it need to do it?
- How will that information be protected once it is in the tool?
Understand the Risk Before You Experiment
Family offices should begin their AI journey by setting clear boundaries around what can and cannot be shared with public AI tools. Cloud-based public LLMs make it simple for employees to start experimenting with AI on their own, often without understanding what happens to the information they paste into a prompt.
For instance, a staff member entering a client's portfolio summary into a public chatbot to draft a quick summary may not realize that the data could be retained or used to train the underlying model. Clear policies that are regularly communicated across the firm can help prevent this mistake, as can directing employees to AI tools they can use safely.
Sensitive financial, investment, tax, family, and personally identifiable information should remain in secure environments, and before adopting any new AI tool, firms should understand exactly how it handles data. Where does the information live? Is it retained after the session ends? Can it be used to train the model? Who inside or outside the firm can access it? What security and permission controls exist to limit exposure?
Answering these questions can slow AI adoption, but unless governance and policy keep pace with AI use, the risks outweigh the potential benefits.
Start With the Use Case, and Lay a Strong Data Foundation
The pressure to adopt AI is strong but adopting it simply because a vendor added a feature or because someone is talking about it is a strategic mistake that often produces scattered, low-value pilots that fail to generate significant ROI.
Instead, firms should first identify a specific problem or workflow where AI could add real value, such as summarizing lengthy documents, drafting first passes of routine communications, or flagging inconsistencies across reports. From there, the firm should determine what information the AI tool would need to perform that task and whether granting access to that information introduces additional risk worth managing.
It is worth starting with a narrow, controlled use case where the benefit is clear and a human reviews the output before it goes anywhere. Early, contained experimentation helps a firm learn where AI genuinely adds value before expanding its role into more sensitive or higher-stakes areas of the business.
Building on Clean, Structured Data
Even the most capable AI tool is only as good as the information it can draw on. Family office data is often scattered across multiple applications and stored in incompatible formats. Layering AI on top of a chaotic data environment is a recipe for poor results. Firms first need a clear picture of what data they have, where it lives, and whether it is accurate and organized enough to support the AI use case they have in mind. Skipping this step leads to AI producing confident, inaccurate output because it is basing its decisions on incomplete or poorly structured information.
The longer-term end goal is to connect AI securely to a family office's proprietary data, knowledge, and institutional context so that outputs reflect the unique needs of each client relationship. Firms that invest in that foundation now put themselves in a better position to expand their use of AI as both the technology and their own needs continue to evolve.
Family offices do not need to choose between ignoring AI entirely and adopting it everywhere at once. A practical middle path exists, and it starts with controlled experimentation. By protecting sensitive information, choosing a well-defined use case, and confirming that the underlying data can actually support it, family offices can see significant benefits from AI without introducing significant risks.
Nicole Eberhardt is the global CEO of Asset Vantage.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
