FIN­TECH AND THE FAM­ILY OF­FICE

What does the fu­ture hold for the bas­tion of wealth man­age­ment?

The Peak (Hong Kong) - - Feature - STORY NI­COLA CHUR­CHOUSE

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.

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