How Family Offices and Financial Institutions Can Leverage Reporting Technology

The ultra-wealthy market segment continues to increase year-over-year in both population and net worth. According to an analysis by Wealth-X, the ultra-wealthy population rose by 12.9% alongside a combined net asset growth of 16.7% in 2017 alone. As family offices and financial institutions begin supporting more family members with more money, it becomes increasingly clear that antiquated means of reporting – like spreadsheets and manual processes – cannot keep pace.

So how do firms move forward to meet their end-clients sophisticated reporting expectations?

They leverage financial reporting technology.

Breaking the Addiction to Spreadsheets

Client reporting is challenging enough without having to rely upon clunky, makeshift tools for tracking and reporting on your client’s financial position. We understand why your firm may not be jumping up and down at the thought of replacing your existing processes and spreadsheets in lieu of high-tech reporting. If you’re like many family offices, you’ve been using the same processes and spreadsheets for years, so it’s only natural to be content with the status quo.

Nevertheless, it’s important to consider the limitations that innately come with spreadsheets. Although easy to use and universally understood, spreadsheets are not intended to be the baseline reporting tool for complex family offices. Here’s why:

Reason #1 – Lack of Accessibility

An application like Excel isn’t designed to support live collaboration. In a family office, it’s quite possible that while you are entering data and running reports in one entity, a colleague may be doing the exact same thing in a different entity.

If that data sits in the same spreadsheet, whose entries get saved? Or, unfortunately, whose entries get saved over? With numerous individuals working on multiple variations of a spreadsheet, it’s nearly impossible to say which version is correct and most up-to-date – which is a recipe for reporting incorrect information.

Reason #2 – Lack of Scalability

Excel is highly customizable, but it’s not scalable across larger volumes of more complex data. And while you may be tempted to create complicated macros and formulas, the reality is that few peers exist in your organization capable of supporting these more complex mechanisms should they break.

Put simply, spreadsheets are not designed to be used in scenarios involving intricate ownership structures, various investment types, multiple currencies and sophisticated reporting requirements – all of which are trademarks of a modern family office.

Reason #3 – Lack of Security

Excel lacks the security and sophistication of purpose-built reporting databases maintained inside of world-class hosting facilities. When it comes to family office security, this goes far beyond password protecting your spreadsheets and locking your computer when you leave the office for the day.

If server backups, data encryption and vulnerability assessments aren’t a part of your security playbook, you’re not doing enough to protect the family’s personal and financial data, and you’re leaving your spreadsheets open to security breaches.

Adopting Family Office Reporting Software

When considering a financial reporting software, it’s important to define expectations across the back-office accounting and investment teams as well as the family members and their advisors.

Before you invest in a reporting software solution, it’s best to figure out what type of reporting you want to produce. We suggest starting with an evaluation of both your investment strategy as well as your current reporting process. A few key factors to consider:

• Asset Types. What types of assets are you reporting on? Should the software be able to handle both public equities and alternative investments? What about personal assets like homes, artwork and jewelry?
• Advanced Accounting. Are you able to track book and tax basis? Do you have a means of capturing and reporting on complex transactions such as mergers, spinoffs and splits? Do you need visibility into underlying tax lots? Do you use complicated inventory relief methods?
• Data. Where is your data coming from? Can the reporting engine receive data electronically from multiple custodians and managers? How is alternative investment data received?
• Performance Calculations. Do you need to be able to run time-weighted and money-weighted returns? If not now, what about in the future?
• Benchmarks. Do you currently rely on benchmarks to gauge investment performance? Does the software allow you to create custom benchmarks or are you limited to industry-standard indices?
• Report Generation. Can you automate report creation? Can you combine multiple reports into a single document? Will you be able to create a table of contents?
• Report Delivery. How do you plan to deliver the reports? Are you interested in email or client portal functionality?
• Customization. Do you need the ability to build ad hoc reports? Do you use user-defined investment grouping or categorizations? Do you need to control the branding of the reports?

Citing James Day, Managing Director of Peritus Investment Consultancy, WealthBriefing’s white paper on must-have reporting capabilities for modern wealth managers addresses the need for sophisticated reporting that goes beyond market values to incorporate metrics like asset allocation, fixed income characteristics and performance calculations.

But, more importantly, the article states that while all of these features lend themselves to better reporting, the core purpose of client reporting is to increase client engagement – which means providing end-clients with the information they want to see in a format that is easy for them to understand.

Finding the Right Tools for the Job

Investing in a reporting software that offers a wide variety of features and functionality will give you a greater degree of flexibility to adapt to your clients’ evolving interests and needs – with the end-goal being increased client engagement. We know that reporting requirements can vary greatly between clients, so to help you set the foundation we’ve outlined several reporting software features that frequently come up among prospective family office clients.

Standard Report Library

Oftentimes, a family office’s first instinct is to seek out a reporting solution that allows for absolute customization. However, they quickly find that starting with a blank canvas can be overwhelming, which can undermine the flexibility of the solution. To help clients become comfortable with the software, many technology providers offer a report library that contains a suite of standard reports such as traditional financial statements, asset allocation, investment activity, performance and risk reports.

With on-demand access to the report library, family offices and financial institutions can quickly analyze data to help them answer their client’s financial questions without having to create complex reports on the fly.

Having said that, it’s been our experience working with hundreds of family offices that no two clients are the same. We’ve taken that notion and built upon the report library concept, allowing clients to select from a list of parameters on each report – we call this controlled customization. With the ability to toggle between investment classifications, types of inputs, performance calculations and report layouts, family offices and financial institutions can easily configure reporting to meet the varying expectations of their end-clients.

Flexible Performance Reports

Not all reporting software is created equal and the topic of performance can further complicate the reporting landscape.

At the most basic level, you’ll find providers that focus on delivering the bare minimum – the kind of reporting that only displays transaction data and rarely aggregates positions across managers or custodians. These providers often lack the ability to provide detailed data at the position-level and are limited to simple investment types, like equities and mutual funds. Among these providers, performance may or may not calculated.

At the next level, you’ll find providers that offer data aggregation across multiple custodians, but provide limited investment analysis information and oftentimes lack an ability to properly track more sophisticated investments like hedge funds, private equity, derivatives and options.

At the most sophisticated level, reporting software providers have built functionality that allows users to measure performance across both public and private investments. These providers offer performance reporting that takes into account things like the timing of activity, cash flows, income, gain/loss, accrued income, pending trades and terminal values.

For many family offices, these providers are the only viable option given the ever-changing investment diversification strategies employed by the HNW population.

Automated Reporting

The ability to aggregate data into meaningful reports is the primary consideration when selecting a reporting software provider. But finding a provider with ease-of-use features in their platform comes in as a close second.

When evaluating reporting software providers, it’s important to consider whether or not the technology will make your job easier. With reporting software, you’ll certainly have more data at your fingertips, but if you can’t produce or deliver the reporting content efficiently, it will hardly add value.

Having the ability to combine multiple reports into a single document allows you to produce a customizable, comprehensive report package – your client’s complete financial picture. Combined with report scheduling and automation tools, you not only create an automated, repeatable internal reporting process but you also provide your end-clients with a predictable and familiar reporting experience.

Flexible Reporting Output and Delivery Methods

Before you select a reporting technology, we encourage you to sit down with your end-clients to understand their report delivery expectations. It’s important to recognize that reporting expectations may vary between generations. For instance, G1 may prefer in-person meetings with hard-copy reports and real-time discussion, whereas G2 and G3 may opt to access their reports on their mobile device while traveling abroad.

As you evaluate the technology’s features and functionality, make a point to ask about output options and delivery methods. Can you save reports to an external FTP server? Can you email reports directly from the application? Does the software provider offer document storage or client portal tools? Can the technology include interactive dashboard-style reporting?

As technology continues to evolve, so will your client’s preferences and expectations around the way they consume their financial information. By selecting a reporting software that can adeptly handle these requests, you will be better poised to successfully engage your client and maintain their trust.

Find out how Archway Family Office Services addresses complex reporting requirements for hundreds of family offices and financial institutions.

10 Types of Reports Every Family Office and Financial Institution Should Have in Their Toolkit

It’s no secret that providing the right financial reporting to your clients can be a time-consuming and demanding task for family offices and financial institutions. Not only are you reporting on complex investments and intricate ownership structures, but you’re dealing with multiple individuals that each have a unique set of preferences and expectations. Simply put, what works for one family member may not work for another.

At the end of the day – or week or month or quarter – producing a set of reports that captures the right information and, more importantly, can be easily digested by the end-client is critical to establishing transparency and building client trust.

Why Personalized Financial Reporting Matters

As technology continues to evolve and play a larger role in family offices and financial institutions, expectations to go beyond the “one size fits all” approach are heightened. Based on Wendy Spires' commentary from a Family Wealth Report article on high net worth client reporting, you lose your competitive edge if operating under a traditional financial reporting style.

Furthering this notion, Spires implies that adopting a personalized reporting construct for each unique client lends itself not only to higher client satisfaction and stronger relationships but also to better decision making.

As you begin evaluating personalized report packages for your clients, we encourage you to think about the story that you want to tell. Identify your audience and their expectations. Ask yourself:

• Who will be reading this report?
• What information is relevant to them?
• Will they get more out of a single page financial dashboard? Or do they prefer granular detail?
• Are they making decisions or just checking in?
• Will these reports enrich your client's understanding of their financial position? Or will they create confusion?

According to Spires, many firms consider progress in reporting systems as a means of pumping more information at family members rather than delivering the right information. But when this approach is applied universally across all clients, it can result in client disengagement. As she puts it, the better approach to client reporting is to provide your clients with visually compelling and useful information that aligns with their goals and ultimately helps them make better decisions.

Aligning Reporting with Client Goals

Finding the right set of reports for each client can be challenging. We recommend sitting down with each client to get a better understanding of their financial comprehension, their presentation preferences and their short-term and long-term goals. It’s equally important to acknowledge generational divides and how they can affect your clients’ reporting preferences.

For example, some clients may prefer hard-copy paper statements, while younger generations tend to have an affinity for mobile, on-demand reporting.

As your client’s advisor and financial caretaker, your responsibility is to provide a clear and honest financial narrative that helps them reach their goals and become a more active participant in their financial story.

To help you compose the right report package that speaks to your client’s financial goals and unique interests, we’ve identified 10 types of reports that every family office and financial advisor should have in their toolkit.

Financial Statements

Traditional financial statements like the balance sheet, income statement and statement of cash flows are certainly not for every wealthy investor. For some, these reports are lackluster and void of interesting information. But for the astute investor or former business owner, these financial position documents are a cornerstone piece of understanding the sustainability of their wealth. They provide a clear picture of what they own and what they owe along with current and future profitability.

Seems important, right?

Knowing that these inquiries may surface, family offices and financial institutions should always be prepared to address questions around the financial health of any given individual, household or legal entity – and financial statements provide the answers they need.

Net Worth

Family offices and financial institutions are acutely aware of the fact that high net worth individuals and families pose a distinct challenge when it comes to net worth reporting. Not only do they have multiple banking and custodial accounts, but they’re oftentimes involved in various investment partnerships, private equity and hedge fund deals, real estate properties and direct business ventures.

That’s still not taking into account their personal assets like homes, vehicles, aircraft, artwork and jewelry.

There’s no arguing that there are a lot of moving pieces, but that won’t stop clients from asking how much they’re worth at any point in time. In turn, the burden rests on you to leverage technology and outside resources to put together a snapshot that accurately portrays your client’s overall financial position – regardless of where those assets reside.

Asset Allocation / Exposure

Based on the 2018 Global Family Office Report prepared by Campden Wealth in partnership with UBS, family offices are continuing to iterate their investment strategies on an annual basis as they seek to balance wealth preservation with growth. As strategies change and allocations to specific asset classes, regions or managers fluctuate, it’s important to be able to track and report on these changing allocations at any point in time.

It goes without saying that you should be able to put together a variety of allocation and exposure reports that give your client a window into how their investments are performing against their investment strategy and its benchmarks. Being able to produce reporting that shows actual allocation against target allocation models, asset allocation history and investment exposure across various legal entities can go a long way in gaining your client’s trust and proving your worth as an advisor.

Activity and Holdings

How many shares of GE do I own across all of my investment accounts? What is the cost basis versus market value of my investments? How much cash flow are my investments expected to generate?

If you’ve ever had to answer questions like these, you already know how important activity and holdings reports are. Consolidating holdings across multiple custodians and managers can be difficult for high net worth investors and their advisors, but with the right reporting tools, you can do just that.

Not sure where to start? Consider evaluating a technology solution or outsourced service provider that uses direct data feeds to banks and custodians to help you collect, standardize and manage your client’s financial data.

Performance and Attribution

Performance and attribution are key metrics used by high net worth investors to gauge the success of their individual investments and managers. Research conducted in 2018 shows that family offices prefer to outsource the management of their equity, fixed income and hedge fund investments, while managing their private equity portfolio in-house.

This can add up to quite a few external players, which means taking on the arduous process of collecting performance details from several different sources and, in some cases, aggregating the data by hand. But performance is tricky and requires a degree of expertise that can’t necessarily be found in spreadsheets.

Instead, we suggest taking a holistic approach to performance analysis that focuses on consolidating your information across asset classes, managers, custodians and geographies and presenting that information in a single view. By leveraging sophisticated tools like performance reporting software, APIs and automated data feeds, family offices and financial advisors can create reports that represent the broader financial picture – not just the small slice of pie that is managed internally.

Risk Analytics

Gaining position-level transparency can be a difficult problem for family offices and financial advisors to solve, especially when it comes to separately managed accounts or alternative investments. But with more and more family offices seeking greater transparency into the risks associated with their overall investment strategy, it’s important for you to harness the power of consolidation.

By establishing a single database of investment information for your high net worth client, you can easily analyze the data across multiple dimensions – like asset class, manager and liquidity – to understand the underlying risks.

Additionally, with more technology firms providing visibility across widely-accepted risk metrics like Standard Deviation, Sharpe Ratio, Drawdown, Beta, Alpha, R-Squared, Correlation and Up/Down Capture, high net worth individuals and families are gaining greater access to institutional-quality reporting metrics.

Alternative Assets

Over the past decade, alternative assets have become a staple within the investment portfolios of wealthy families. Yet many advisors struggle to capture this piece of their client’s overall investment portfolio, and rightly so. With innately unique performance and activity attributes, alternative assets can be challenging to incorporate into traditional financial reporting.

With such unique qualities, many advisors turn to workarounds like spreadsheets and over-simplified single-line valuations on statements. But the truth is that this information doesn’t provide enough detail to really help clients understand their hedge fund and private equity investments. However, with the right tools in place, advisors can comprehensively track cash flow activity, fair market value, basis, performance, investment liquidity and fee structures.

The result? A well-rounded assessment of your client’s alternative assets and their role in the overall investment portfolio.

Fixed Income Analytics

Bonds and other debt instruments continue to be a significant player among many family offices’ investment strategies, on average making up nearly 16% of the family office portfolio. This means that the ability to deliver a snapshot of fixed income characteristics, accrued interest, cash projections and credit ratings is crucial to managing this important asset category.

Putting a system in place to capture details like par, market value, yield, duration and convexity – and, better yet, automatically calculate interest and amortization – can be an effective way to deliver clear insights into your client’s fixed income investments.

Budgeting and Forecasting

Wealthy or not, it’s important to know how much money we have – and will have – and how it’s being spent. But those can be difficult questions to answer when you’re working with high net worth individuals and families. From aggregating information across multiple checking and savings accounts to keeping tabs on investment liquidity and impending cash flows, family offices and financial institutions are responsible for meeting their clients’ high – and varying – expectations.

Whether your client needs to pay an unexpected medical bill, purchase a new home or procure cash for a new investment, preparing budget to actual comparisons and cash flow forecasts can help you quickly and accurately assist your clients when planning for small and large expenses alike, while keeping their sights on their long-term financial goals.

Expense Summary

Even for the average individual, it can be easy to lose track of how much cash you’re spending. For the ultra-wealthy, spending activities only increase in complexity from simple utility and credit card bills to household expenses for multiple properties, investment capital calls and even tax payments. Between the lengthy list of vendors and the endless transactions, family offices and financial institutions struggle to track, categorize and manage their clients’ spending behaviors.

Reports that offer insight into how much your clients spend, how those expenses are allocated and who is getting paid are all key to getting your arms around your client’s spending habits. Prudent expense reporting can also help ensure that both you and your client remain compliant with the family’s wealth preservation mission.

If you're interested in learning how to tailor investment reports using each client's unique financial knowledge and investment goals, download our Optimize the Creation of Performance Reporting white paper.

A List of Technology Questions to Help You Make the Right Fintech Decision for Your Family Office

When it comes to family office technology, there is no shortage of options across the space. From integrated accounting software to portfolio management tools and investment reporting applications, there are plenty of suitable choices.

But how do you know which technology is right for your family office?

As time-consuming as it can be, the due diligence process is an important step to ensure you make the best possible technology decision. Before you make a decision, you should be able to answer questions such as:

• Can the technology be used by multiple teams or will you need more than one platform?
• Does your fintech vendor have enough experience working with complex wealthy families?
• Can your vendor handle your implementation project?
• Does your vendor provide sufficient application support and data security?

By asking a variety of questions – from the company’s background and organizational stability to the product’s functionality and reporting capabilities – you should be able to create a holistic view of how the technology solution can help your family office address its biggest pain points.

And we get it — that can be a lot to take on.

It’s no easy task to uproot your current process in search of a new technology solution. But with the right due diligence process in place – and with a little help from a ready-to-use list of technology questions – you can set your firm on a path to find the right fintech platform for your family office or financial institution.

Our compilation of role-based due diligence guides highlight key considerations that can help you choose the right fintech solution for your family office or financial institution.

Whether you’re an executive, accountant, investment advisor or IT professional, our goal is to provide you with the tools you need to make an informed technology decision for your firm.

50 Questions for Executives

Your role as an executive gives you a unique vantage point when selecting a technology platform. After all, you’re responsible for finding a technology solution that is a good fit for all players involved – tax advisors, investment operations, the accounting staff and family members alike. It’s your job to dig into the fintech vendor and become an expert in their background, the broad set of capabilities within their offering and their experience implementing technology across projects similar to yours.

50 Questions for Accountants

Given the nature of your role, you need to know the ins and outs of the system – from how it processes basic transactions to how it handles the most complex accounting scenarios. The questions in this guide focus on the features and functionality of the system, including general ledger capabilities, accounts payable tools, investment data processing and partnership accounting features.

25 Questions for Investment Advisors

As an investment advisor, you are responsible for managing and growing the family’s wealth. Finding a technology solution that allows you to plan, track and report on the family’s investments – regardless of the type of investment, where it’s held or who manages it – is your number one priority. At the end of the day, you need to know how well the technology solution can handle your unique mix of investments.

Our collection of questions regarding portfolio management, third-party data collection, performance and client reporting offers you a baseline to build out a broader set of questions that can help you find a technology solution that meets your specific requirements.

25 Questions for IT Professionals

You may not be a user of the technology, but it’s your job to verify the strength and durability of the platform. In an age where cyber security is a top concern, understanding the technology vendor’s security protocols, software development practices and hosting options will help you determine the reliability and sophistication of the system – and whether or not it is worthy of your organization’s trust.

How to Prepare Your Family Office for a Technology Implementation Project

If you’ve ever participated in a technology selection for a family office, you likely know that the process requires a great deal of attention and effort. After all, the decision made by you and your team will have effects across the board – on your in-house accounting and tax professionals, on your investment and reporting teams and even on the family members themselves.

So what can you do to help your team successfully implement your chosen technology solution and, in turn, create efficiencies for the entire team?

To be honest, that’s a loaded question. A lot goes into planning and executing a technology implementation.

Fundamentally, you will need (1) a strong project leader, (2) a practical timeline and (3) a defined budget. From there, you need to pick (4) the right tools and (5) the right people, make sure you’ve (6) assigned project tasks to the appropriate team members and (7) prepared for major decisions that will chart the course of your implementation project.

Of course it’s more complex than that, but by addressing these seven key decisions upfront, you can help ease the transition to a new technology solution for your family office.

To help illustrate these decisions, we created a simple infographic comparing technology implementations to scaling a mountain.

While we acknowledge that it may be an interesting comparison, the infographic helps define the challenges that lay ahead as you begin investigating new technology.

Download the complete white paper to understand these decisions and the underlying components that can affect how you make them.