Many family offices have the wealth of a small institution, but they lack the operational controls and resources that an institution is required to have. Hiring experts in investment operations is a step in the right direction.
Family offices are complex entities that require a range of experts and specialists in a variety of areas:
Family governance, succession planning, trusts, taxes, accounting, charitable giving, investment management, among others…
But one area that gets overlooked is operations.
Family offices do not face the regulatory pressures that demand operational oversight in the way a wealth or asset management firm is subject to.
Without those requirements, they will chart their own course, for better or worse.
Maybe a family member handles operational work, but how effective are they? Do they even like the work? Or simply their time is better used in other areas.
Even if a non-family member does the work, the function itself may not have been a priority from the start.
Also, unlike investments and managing business cashflows, operations itself does not generate revenue.
The result is a piecemeal, haphazard, and reactionary approach to family office operations.
Operations is truly the foundation of any investment management firm, including family offices.
And that is because operations has a hand in so many crucial functions:
Reporting, data, technology, cybersecurity, workflow management, coordination between different departments…
An operational expert (or team of experts) would manage these processes effectively, which is exactly why family offices need such talent.
Because operations is intertwined with so many facets of a family office, a true expert and leader will look at these activities and find better ways to get things done:
These are just some of the questions a family office operational expert would ask themselves, of which to find answers and develop solutions.
In that quest for greater efficiency and a modernized approach, the operations expert will have a long-term outlook and place digitization of the family office as a top priority:
With an eye for efficiency and modernization, operations experts will focus their attention on data.
And the key is improving the data quality by improving the workflows around that data.
Quality data leads to better reporting, analysis, and decision-making.
Families will have a more holistic view of their finances, assets/ownership, investments, taxes, accounting, and everything else related to family governance.
It takes a real specialist in operations to take data to that next level.
An operations expert not only understands the value of family office data, but also the importance of security around that data.
And the threats are real.
According to a study from Boston Private, “over a quarter (26%) of family offices have suffered a cyberattack. In almost two-thirds of these cases, it happened within the last 12 months.”
Kevin Hulbert, a senior adviser at global law firm Dentons, pointed out why they’re at risk:
“Family offices sometimes fall through the cracks of being big enough to be specifically targeted, but not having in place the strong risk management measures typical of bigger organizations, hence leaving them very vulnerable.”
Family office operational experts will place great emphasis on security to prevent these attacks from occurring.
This will require assessing the entire IT infrastructure, then putting in place all security measures.
According to Citibank, a family office’s expenses often amount to approximately 1%-2% of total active assets annually. Using $100 million in assets as an example, that’s between $1 million and $2 million of yearly expenses.
An operations leader and expert will be mindful of costs, as the above solutions should be within budget.
That is why families must optimize inefficient, time-consuming workflows.
They should get more work done — better and faster — in less time and with less money.
An operations expert should also identify and eliminate wasteful spending on software and systems, as well as figure out the most efficient ways to use human capital.
If a highly skilled portfolio manager is spending hours manually inputting data, that is clearly a poor use of their time and family resources. Instead that work can be either automated or done by a third party at a lower cost.
It can be a seasoned industry veteran COO, or someone who specializes in a specific workflow.
Families can hire full-time or part-time staff to carry out these functions, and they can partner with third-party family office operations services providers like Empaxis.
At Empaxis, we provide operations support for single- and multi-family offices by streamlining their middle- and back-office and accounting functions, as well as automating and digitizing their data processes.
Through this approach, family offices work far more efficiently and at a lower cost than doing the work in house.
While operations may have been overlooked (until now), there are clearly benefits to having such experts, as mentioned above.
The organizational, technical, communication, and leadership skills they possess will help family offices run a leaner, fully optimized and modernized operation.
Focusing on digitization and data-centric approaches with a long-term outlook, operations experts will deliver benefits to the family office to be enjoyed for years to come.