FINTECH AND THE FAMILY OFFICE
What does the future hold for the bastion of wealth management?
Fintech is the hot sector right now. From robo advisors and artificial intelligence, to blockchain, big data and bitcoin, there's a revolution underway. We are bombarded with promises of imminent disruption to our financial lives from advances in financial technology. But what about those working in the financial services industries? Are they all going to be replaced by computers and robots?
A lot of money is pouring into the sector. Last year, according to Accenture, global investment in fintech ventures grew by 10 per cent year-on-year, totalling US$23.2 billion (HK$181 billion). Asia in particular is at the forefront of this wave of capital. Fintech investment in the Asia-pacific region actually doubled to US$11.2 billion last year, exceeding North America for the first time. But Hong Kong and China are where the majority of the action is, accounting for 44 per cent of total global fintech investment. Within that figure, online payment platforms have been attracting the most capital in the past two years.
But what about the family office of the future – what will all this fintech activity do for a critical but niche area of expertise?
The problems that family offices face today are decidedly unsexy. The biggest and most immediate challenges stem from a lack of reporting automation and efficiency for asset and portfolio management. Hugh Whitehill, the CEO and co-founder of Link International Limited, a provider
of digital automation tools for the financial services industry, points to the efficiencies and scalabilities that fintech can offer in these areas. “The inner workings of a family office are not inherently complex, but there is a number of tasks that need to be performed that require coordination and data. Fintech excels when working with coordination and data,” he says.
Family offices might have tens or even hundreds of millions of dollars in assets under management, but the day-to-day processes are often burdensome, relying on legacy systems that are not automated, with manual and error-prone processes when it comes to both management of data and reporting on that data.
These family offices typically use a range of banking and asset management providers, and they invest across the spectrum of asset classes. Bonds, stocks, funds, venture capital, real estate, commodities, businesses, derivatives and structured products all come with their own reporting channels. There's a huge amount of manpower dedicated to simply consolidating everything regularly for the decision makers of the organisation.
A member of one family office, who wished to remain anonymous, said: “We are dealing with institutions and assets from all over the world, encompassing dozens of account statements, for example. We have staff whose full-time job is just to stay on top of everything and constantly update spreadsheets so we can get a regular snapshot of the portfolio. It's labourious manual data input work and it's very time consuming.”
An additional priority for fintech innovation with regard to family offices is providing a better understanding of respective portfolio risks. Family offices are looking at accounts across multiple providers for their custody and trade execution across all asset classes. How do you keep decision makers informed, real-time, of their overall asset portfolio risk?
“While banks have dedicated IT teams to integrate multiple solutions, family offices typically don't have the required resources and management time to do this,” explains Julian Schillinger, managing director and co-founder of Privé Managers, a digital wealth management technology company. “Hence, there is a strong interest in a completely integrated and out-of-the-box solution, like ours, which digitises the whole wealth, regulatory and client management process.”
Schillinger also notes that, as wealth is being transferred to, or created in, younger generations, the overall expectation of family office solutions is of a more modern technological experience offering the kind of convenience found elsewhere online.
“The client expectation, with respect to what is understood as the digital channel, is changing,” he says. Just being able to bank online is far from enough; this is now a basic expectation. The family office of the future will need to be able to integrate all of these existing platforms into a single coherent, efficient, and truly digital package.
And robots? The belief that robo advisors coupled with artificial intelligence will take over all family office advice, trade and asset allocation execution is likely unfounded. In the mass affluent and retail sectors, robo advisors that automatically allocate your portfolio between a range of exchange traded funds based on your personal riskreturn requirements are gaining significant traction, with a promise of low fees and ease of use. But family offices are far more complex.
Fintech will make the future family office smoother to run, with artificial intelligence and integrated platforms working in harmony to provide a real-time, 30,000-foot view on portfolio risks and returns, along with satisfying all the reporting requirements necessitated from increasingly demanding global regulators. So called “bionic advisory”, a marriage of technology and human capital working together, is likely to dominate.
But when it comes to issues like succession planning and inheritance decisions, rest assured those decisions will remain very human indeed.