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1 January 2014 CFA Institute Journal Review

Technology and the Family Office (Digest Summary)

  1. Stuart Fujiyama, CFA

Wealth managers and family office professionals now rely extensively on information technology. But certain technology-related areas, such as data aggregation, remain a challenge. Rather than promote the implementation of a particular technological solution, the authors present a straightforward system- and process-level framework for improving the management of operations through the understanding, selection, and use of technology.

What’s Inside?

The authors first outline a step-by-step, staff input–based approach for identifying, prioritizing, and selecting the ways in which a wealth manager’s family office can improve its use of technology in key application (office function) and infrastructure areas. The authors acknowledge that such improvements do not occur without a connection to developing technology. Accordingly, they next discuss seven technological trends that affect wealth managers, focusing mainly on four less-appreciated trends. Finally, with the aid of summary charts, the authors explain how those trends affect the application and infrastructure areas of family offices.

How Is This Research Useful to Practitioners?

According to the authors, the five basic technology infrastructure requirements of a modern office include not only such familiar areas as computer/network/telecommunication hardware, information security, and communication applications (e.g., e-mail) but also education in the form of training on how to use the technology and how to improve office processes.

Twelve functions that are performed in a family office can potentially foster an improvement in operations with the appropriate leveraging of technology. The functions include, among others, contact management, financial planning, risk management, portfolio rebalancing, and securities trading.

All members of a family office—especially those who use the available technology—should provide input about the importance and current capability of each part of the infrastructure and application area. The objective is to identify areas that are critical but for which the current technology is not sufficient. The authors provide sample ranking forms to assist in this prioritization.

Once the input has been gathered, a project leader must then review the recommendations and decide which technological improvement projects to pursue, a decision that is not always easy. An awareness of developing trends in business technology can help ensure that the most informed choices are made. Three trends—social media, cloud computing, and mobile devices—should be familiar to most financial professionals.

Less appreciated are the remaining four trends: the electronic availability of market data and client-specific portfolio data, the development of software products specifically for high-net-worth (HNW) buy-side investors, the outsourcing of data management tasks to service providers, and the proliferation of web-based investment education resources.

Overall, the authors find that trends in technology have had a negative effect on the infrastructure area of information security and a positive effect on communication and education. They also find that data availability, software for the buy side, and outsourcing have had a positive effect on family office applications and functions.

How Did the Authors Conduct This Research?

The authors’ assessment of the impact of technological trends on infrastructure areas is, in their words, “highly subjective, and beliefs can vary over time.” Their assessment of those trends’ impact on family office application and functional areas is presumably subjective as well.

But it should be noted that these subjective assessments are underpinned by the authors’ substantial experience with family office information technology. One of the authors is the co-founder and current CEO of a technology solution provider in the HNW marketplace. Two of the remaining three authors are also part of the technology solution provider’s executive management team.

Abstractor’s Viewpoint

This research should be of interest to wealth managers and family office professionals who are seeking a high-level framework for considering and prioritizing technology-driven improvements in their operations. I agree with the general approach of reaching out to office staff—especially those who actually use the technological infrastructure and applications—when considering such improvements. It establishes a precedent for gathering ultimate end-user input that will hopefully be maintained through the implementation of specific solutions.

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