It is no secret that the wealthiest segment of the U.S. population is getting wealthier. This is good news for wealth management’s single-family and multi-family office segment. As overall wealth grows and expectations for family office services increase in scope, firms in this segment have more opportunities to scale by providing their clients with more individualized services. With services such as personal bill pay, payroll management for family office and household staff, estate planning, tax planning, and cash management, they can generate more revenue and build “stickier”relationships. Traditionally there have been cost constraints associated with these services because they involved labor-intensive, manual processes that require individuals to administer QuickBooks or even hand-write checks. Therefore, many wealth managers only offer such services to their wealthiest clients, and they fail to maximize potential revenue.

Technology can increase operational efficiency and lower the threshold of net worth needed to form a family office or for a wealth manager to offer family office services to more of their high-end clients. For example, by leveraging the right technology, a wealth manager could potentially maintain headcount, lower the AUM threshold to qualify for family office services from $50 million to $25 million (or even less), and as a result, provide more clients with additional high value-add services.

The decision-making challenges for wealth managers and family offices include how to select the correct tools, how to integrate them into streamlined workflows, and how to structure operations to replace manual processes and offer new services.  Because HNW and UHNW individuals tend to have different needs with respect to services and planning (asking for example,“should I buy a company?” instead of “should I invest in a stock?” or “should I set up a foundation?” instead of “should I make a charitable donation?”), tools designed to service the mass affluent client relationship do not suffice.  Family offices and family office service providers need to invest the time in researching vendor technology to select the appropriate tools for their unique services and processes.

Key Considerations Before Adding New Technology

Before diving into research for specific vendors and technology options, understanding the answers to three key considerations can help family offices make better decisions.

  1. What is your core competency and value proposition to your clients?
  2. What are your current pain points? How can technology mitigate them and/or offer a better client experience?
  3. How will you accommodate evolving client expectations, particularly within multigenerational household relationships?

Once you know the answers to these questions, you can embark on a research process to deliver the right technology for your needs.

Wealth Technology Vendor Research Process

A thorough wealth technology vendor research process will cover several areas and can be broken into five steps:

  1. Areas of Opportunity—Identify the top areas of opportunity within your firm to structure the right services.
  2. Experience and Subject Matter Expertise—Find someone who knows or uses the players in the space to advise your research. In addition to primary sources, you can also look at industry reports such as awards programs, associations, or the Family Wealth Report to build a vendor list to evaluate.
  3. Resource Review—Once you have built a list of potential vendors, examine their offerings and differentiators. Look for:
    a. What is new?
    b. What functional areas (for example, portfolio management, accounting tools, performance reporting/analysis, or for multi-family—CRMs) do they cover?
    c. What attributes separate them?
    d. What and whom do they support?
    e. Can I buy it out-of-the-box or will I need internal support?
  4. Weighted Needs Scale—Technology tools will check multiple boxes, so once you have the answers to the questions above, establish a ranking system that places the most importance on the differentiators that meet your firm’s unique needs.
  5. Integration and Data Models—The biggest cost drivers for technology projects are the cost of integration and understanding the data models (do they have API interfaces? Is it hard to get data in and out?). Having a clear picture of the implementation process and the resulting technology ecosystem is critical.

Finally, while implementing the right technology solutions can be a huge boom to your business, adding technology alone will not solve a problem or grow a business line. If you do not start with a sound operational model and good processes, it is unlikely you will achieve the desired results, even if you select the best tools available. Prioritize strategic planning, building the operation model, and designing good processes before you decide on technological solutions.  Performing technology vendor due diligence with this strategic mindset of process optimization and providing excellent client experiences versus expecting a tool to provide new or better services will result in better outcomes.

Have questions or need vendor research support? Get in touch with F2 Strategy to understand how our experts help family offices and other wealth managers make critical technology choices.