Morgan Stanley
Wealth Management

Why Integrating Technology is Critical for Successful Family Offices

Oct 24, 2024

A centralized system can optimize procedures, inform decisions and enhance security to drive operating leverage and scale.

Author
Stephanie Crombie, Executive Director, Head of Client Management, Morgan Stanley Family Office
Author
Marielle Ravosa, Vice President, Morgan Stanley Family Office

Key Takeaways

  • A holistic approach to technology integration can help streamline daily processes and enhance operational effectiveness.
  • When considering technology and service model options, look for unified systems that are built for scale and supported by a robust service model.
  • Ensuring data security, privacy and confidentiality is paramount, and a well-designed administrative system can help support data management. 

For family offices and wealthy families with assets and investments spanning providers (and often the world), these seemingly simple questions can be anything but straightforward: Where can we find updates on our different investments and assets? Where can we find the details on all of our entities and accounts?

 

Information is often stored across spreadsheets, physical documents, emails, flash drives and more, turning the foundational task of updating family members and stakeholders into a complicated process. Additionally, families’ ability to make fully informed decisions can be hampered by the lack of a central source of data to oversee a full investment portfolio. And with a variety of methods of storage comes well-founded concerns about data integrity and security. According to recent survey, 83% of family offices said cybersecurity and data breaches are their biggest operational risks.1

 

With critical information seeming to live everywhere and nowhere at the same time, many family offices use third-party tools to consolidate data. This may initially appear to be a manageable, cost-effective solution but it can introduce further complexities. Having a “single source of truth” to capture assets and investments can help families make thoughtful and informed decisions about financial and generational planning, lifestyle, trusts and estates. 

 

For family offices and families looking to centralize and safeguard their information, these principles can help them discover the right approach and toolset to meet data-management needs.

Understanding the Available Technology

A key challenge for families in consolidating their information is that most accounting and reporting technology was simply not built for family offices. Many accounting systems were created for general use. Similarly, the solutions offered by most financial technology (“fintech”) companies solve singular problems, or introduce complexity because they do not integrate with other platforms.

 

While these low-cost solutions can be initially appealing and licensed with good intentions, family offices pay the price in the time and energy needed to reconcile information across platforms. They often end up relying on manual data aggregation to extract the insights they need. This then leads to the added financial burden and effort of hiring and retaining administrative staff to support operations and technology management across platforms.

i
With a customized and carefully assembled platform, family office personnel can access tools to help streamline processes, gain portfolio insights and make informed decisions.

Exploring a Holistic Solution

While fintech and accounting solutions that do not fully address family offices’ needs present difficulties, committing to a new technology and operating model can feel like a big change. Families may be overwhelmed by the abundance of providers to choose from or be hesitant to leverage a new process or system if they’re concerned about the security of an external platform, losing full data ownership and control, or disrupting the status quo.

 

However, exploring holistic solutions can empower family offices to focus on the insights and features that matter most to them. With a customized and carefully assembled platform, family office personnel can access tools to help streamline processes, gain portfolio insights and make informed decisions. Technology can enhance roles and effectiveness, allowing families to take on more strategic and proactive work to maximize impact.

Opting for better data management

As families and family offices consider secure, scalable and comprehensive technology and service model options, there are several considerations to keep in mind to help them choose the approach that best aligns with needs.

  1. 1
    Unified foundation and substance:

    • Unified system: Look for a sole unified system capable of intaking data from external custodians and providers to deliver a single source of truth. A complete, clear picture of the portfolio is critical.
     
    • Built for scale: Ensure that technology is comprehensive and built for scale. Many families believe that administrative challenges revolve around data visualization. However, enhancing representation does not solve the root issue of timely, accurate or complete portfolio data. Technology should be automated and scalable to capture data accurately and completely.

  2. 2
    Robust service model:

    • Operations support: Look for providers that offer both technology and an integrated service model to deliver  operating leverage. Having a service team to operate and maintain administrative technology is powerful as it ensures that family offices are not left to navigate sophisticated platforms on their own. Families no longer need to bear the burden of licensing and operating technology. This approach empowers family office personnel to focus on value-additive functions while leveraging the expertise of a team to enhance capabilities and best utilize the technology.
     
    • Industry insight: Additionally, service teams often have a finger on the pulse of the industry and a potent concentration of information. They can be nimble and proactive in partnering with family offices to design and deliver industry-leading administrative solutions.

  3. 3
    Fit-for-purpose and fit-for-future technology:

    • Customizations and flexibility: Every family office is different. Look for a malleable system capable of drilling down to the most granular detail (e.g., entities, family members, asset classes, geographies) and able to roll up to the highest levels for insightful, tailored analysis.
     
    • AI enhancements: Increasing advances in artificial intelligence (“AI”) may accelerate the efficiencies and impact of technology. There are opportunities for integration with a plethora of AI-driven tools, including data aggregation, document collection and data extraction, portfolio management, trend analysis and regulatory compliance.2

  4. 4
    Security, privacy and confidentiality:

    •  Privacy protection: Security is a key focus of family offices. Ensure that technology uses fulsome data security protocols and sound cybersecurity practices.

Unified Data Can Guide Generations to Come

Designing a holistic administrative family office solution is rarely a one-size-fits-all process. Taking the time to assess the technology, staff and infrastructure needed for an institutional standard of data integrity can open the door to a vastly more streamlined, secure approach to data management and aggregation. 

 

Going back to the basics of ensuring sound data and achieving a single source of truth will pave the way for more informed, actionable insights to guide generations to come.

 

To learn more, please visit Morgan Stanley Family Office. 

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Footnotes:

1 RSM, 2024 RSM Family Office Operational Excellence Report, February 29, 2024, https://rsmus.com/insights/services/family-office/2024-rsm-family-office-operational-excellence-report.html
2 Forbes, Seizing the Last-Mover Advantage: The Digitalization of Family Offices, by Francois Botha, May 29,2023, https://www.forbes.com/sites/francoisbotha/2023/05/29/seizing-the-last-mover-advantage-the-digitalization-of-family-offices

Disclosures:

This article is provided for informational purposes only and no representation of any kind is intended with respect to the practices described.  Nothing in this article should be construed as a cybersecurity evaluation.  Morgan Stanley is not responsible for determining what cybersecurity best practices are most appropriate for your needs.  While efforts have been made to assure the completeness and accuracy of the information as of the date of the presentation, no representation is made that such information is accurate or complete, and Morgan Stanley undertakes no obligation to update the information as its practices change.  Reproduction, transmission, dissemination, or other use without authorization or attribution is prohibited.

Artificial intelligence (AI) is subject to limitations, and you should be aware that any output from an IA-supported tool or service made available by the Firm for your use is subject to such limitations, including but not limited to inaccuracy, incompleteness, or embedded bias. You should always verify the results of any AI-generated output. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

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