The idea has been around for a while and while the concept is great the execution is what let it down. A VFO needs to be able to provide “control, customization, confidentiality, coordination and integration of services” to quote a recent FOX presentation. I would add that to achieve this you need transparency.
The Quarterback analogy is often used when describing the Virtual Family Office and we all know the number of people, and technology, it takes to support a QB in a football team. So, a Virtual Family Office needs something similar, a way a team of talented individuals can work together using the same playbook, communicate seamlessly and deliver to the client’s expectations.
A key problem all family offices face, as well as many wealth managers, is to have a single system of record. Up until now that has been nigh impossible even with a data warehouse approach, because that does not give you transparency into the underlying transactional systems.
Often a family member coordinates the functions of a VFO and then outsources the services to independent outside advisors/providers. The reasoning for a VFO and the theory around its benefits are clear, but what does this look like in practice in most cases? All they get are reports.
- The family member coordinator is using his home computer and using Microsoft Excel as the ‘family system-of-record’
- One or more brokerage/custodial companies are providing investment reports, without any easy way of consolidating the data
- The accountant is using a combination of people, Microsoft Excel and an accounting package like QuickBooks to provide the financial picture at the various entity levels (companies, partnerships, family members, etc.) This is for on-going reporting and usually for tax preparation
- A lawyer or trust company is managing and reporting on the trust activities. They have a trust accounting software package as a system of record
- A fiduciary advisor is helping various family members with estate planning, using one of the many planning software packages, and is reliant on the integrity of the data provided from all the other advisors involved, as well as the family members
This demonstrates the susceptibility to poor practices, bad/missing data and the potential for accounting and compliance problems. It is also not a sustainable way of working to support a family of wealth because of the complexity. All the knowledge is distributed and is in people’s heads.
What should VFO look like?
- The family, or one of the family’s advisors, provides an integrated software platform that provides the functionality of CRM, Investment, Accounting, Trust Accounting, Partnership Accounting, Reporting, Estate Planning, Client Portal and Document Management/Storage
- One ‘system of record’ where the use of Microsoft Excel is used for the job it was designed for – analysis
- All of the family and advisors can log-in to the provided platform and what they can see and do if defined by the assignment of a system role and responsibility
- A family member QB gets transparency and can see all related to the family, but say a tax accountant can only see the tax related data and documents for the clients they represent
- The platform has a data aggregation/normalization/exception management functionality to provide consistent and good data. This facilitates cash management, estate planning, etc.
- The platform provides consolidated reporting at all levels of entities, family members, partnerships, trusts, etc.
- The platform has embedded business rules, processes and workflow to systemize knowledge
- All users can access the system wherever they are, 24/7/365, in a secure way and with full disaster recovery and business continuity
- Full KPI analysis and service level monitoring
Who can provide this platform for a VFO approach? Visit www.eton-solutions.com