Fintech on Friday: Moving the family office online

Covid lockdowns and a mass move to remote working have laid bare weaknesses in the governance processes and risk management of many family offices, driving a significant shift to digitalisation.

While most still adopt a very archaic approach to running their affairs, multi-generational families — particularly those with a complex structure — were forced to digitalise their communication strategies very quickly. While many embraced technology to make more timely, secure and effective business decisions, the move was vital to avoid using email for sharing sensitive information and making decisions on critical issues.

“With social and travel restrictions making it difficult to meet in person, the pandemic has really pushed the digital transformation of many families,” says Edouard Thijssen, co-founder and chief executive at Trusted Family, a technology provider headquartered in Brussels, with offices in New York and London. The number of his new family office clients rose by 20 per cent in 2020.

His mobile, modular system enables families to securely share, organise and send information to their members, cast their vote and take decisions, creating greater transparency and accountability.

The service was initially launched 15 years ago to meet the needs of the two founders’ own businesses, and now serves 150 family offices across 25 countries.

Activities cover a range of areas, from the families’ own businesses and investments to succession planning and philanthropy, and from children’s education to event management.

During the pandemic, the platform has been particularly useful in managing relationships between family members, explains Mr Thijssen, as family leaders had to make crucial decisions, very quickly, in a very uncertain context.

“In every family, there are people who have an active role, and those who don’t. When things go well, no one complains, but when things are so uncertain, transparency and communication become even more important,” adds Mr Thijssen. “We have a health crisis which has become an economic crisis. You don’t want to have a family crisis on top of it.”

It is important to identify best practices and then share them with other families, he adds. One notable trend is that of patriarchs kickstarting more regular communications with family members and shareholders, to build trust, enhance transparency and avoid family disputes. The system also enables leaders to run different scenarios.

Engaging the next generation

Also important is the accelerating involvement of more tech-savvy next generation members in family affairs, who are now often appointed to boards to help drive the digital transformation of their family businesses, reports Mr Thijseen.

While patriarchs may be resistant to change, the second- and third-generations are very receptive to embracing technology, believes Bobby Console-Verma, chief executive at 1fs Wealth, a London-based wealth technology and data platform for family offices and wealthy individuals. “Most of our dealings may start with a conversation with the patriarch, but then it rapidly moves to full engagement with the next generations,” he says.

But increasingly, patriarchs are also acknowledging the importance of digitalisation to increasing business efficiency, put to the test by the pandemic.

During the crisis, many family offices have struggled to get access to historical documentation, having “to hunt for documents globally”, which has caused issues with transactions.

“Family offices are highly primitive when it comes to technology. They operate off the back of spreadsheets and lever-arch folders, with papers, quite literally, scattered around the world,” says Mr Console-Verma, a former investment banker whose family has run its own office for decades. He set up his fintech business at the end of 2019, with the issues exposed by the pandemic accelerating his firm’s expansion.

“The biggest issue family offices face is that they are constantly firefighting and always operating on the back foot. But the pandemic has made them realise they have got to be proactive.” With markets moving very quickly, they need to be able to run portfolio scenarios, monitoring the effect of exposures on portfolio behaviour.

The increased risk of sudden family deaths has also become a key concern, triggered by Covid-19. 1fs Wealth’s platform offers a succession-planning module which allows families to record all their assets and documentation, as well as the current will, with the system automatically sending an alert to prompt the patriarch to update it.   

Younger family members are particularly engaged with the platform’s ESG module, which enables them to build sustainable portfolios in line with their values. Its philanthropy module, which allows users to monitor the impact of their giving, has also been popular.

The “genuine shift” towards technology is likely to continue in the future, believes Mr Console-Verma. The cost of not transforming digitally would imply greater inefficiency and cost burden. “Without a proper technology platform, families may run the risk that they do not even know which assets they own,” he says, adding that many families do not have a full inventory.

Cyber security

One of the greatest challenges faced by family offices has been dealing with threats to cyber security, states Bill Woodson, head of wealth advisory and family office services at private bank Boston Private.

“Families do not appreciate just how much at risk they are, so they don’t invest as much time and effort into protecting against cyber intrusion,” he says.

Family offices tend to believe that anonymity, which they spend much time and efforts to achieve, is going to protect them against targeted cyber attacks, he adds. As a result, they may install cyber protocols, but they do not educate their employees on how to engage. “The greatest risk for families and their businesses is not whether they have adopted the appropriate technology, but whether they train their employees or family members properly, as this is where most frauds happen,” he says, explaining that technology vendors should also offer consultancy and education services.

The Covid-19 pandemic has driven a rapid acceleration of cyber crime. More than a quarter (26 per cent) of family offices have suffered a cyber attack, most of which happened within the past 12 months, according to a recent survey conducted by Boston Private on 200 family office executives at single- and multi-family offices, primarily in the US.

Of these family offices, 57 per cent see cyber risks as a major challenge. Threats come from all directions, including phishing, data theft and remote working. Historically, cyber security in family offices has focused on finances and making sure money is not transferred mistakenly or fraudulently. But according to a recent EY report, as information has moved to the cloud and social media, “the walls of these businesses have expanded, opening many more opportunities for attack”.

Greater engagement

One silver lining of the pandemic is that digital communication, if done properly and with the right tools, fosters and improves engagement of family members, which is the driving force of family business success. “Engagement keeps the family connected and that connectivity is often found in the most successful multigenerational family, where the family has shared values, approaches and history,” explains Mr Woodson.

Achieving connectivity through technology not only enables reaching family members across the globe, but also encourages dialogue with the younger generation, which is more comfortable using technology to communicate.

Bringing families together virtually is currently much more realistic than physically, adds Mr Woodson. “It makes it much easier to achieve educational or communication objectives in areas such as investment management and philanthropy, and facilitates making important family or business decisions.”

Source: Boston Private

Source: Boston Private