Solving the build-it vs. buy-it dilemma for family offices

If you've seen one family office — including everything from its client service model to its operational infrastructure — then you've seen precisely one family office.

Certainly, the saying has more than an element of truth, with many family offices often as unique as the clients they serve. Among other things, this means the classic build-it-or-buy-it technology dilemma that bedevils so many across the industry has been especially haunting.

As with other wealth management businesses, family offices have always had to consider the trade-offs between customization and price when putting together their tech stacks. 

For builders, constructing a tech solution for family offices from scratch has typically been the easiest way to accommodate their specific needs. The problem? Maintaining a platform like that is expensive and time-consuming, both on the front end and over time.   

Buyers, for their part, may have to spend less time and money on a third-party solution. The drawback, though, is that tailoring an offering to meet the demands of their clients — who in the case of family offices have sprawling wealth and a host of complex issues to navigate — has proven to be an enormous challenge.

More and more, however, firms are learning that they don't have to make as many concessions. Indeed, modern third-party platforms today can deliver both a customizable and cost-effective solution to family offices — a development that could render the build-it-or-buy-it debate moot going forward.

It all comes down to having the proper foundation and architecture at the start. Here are some things to keep in mind.

VERSATILITY OF INTEGRATIONS

Many high- and ultra-high-net-worth clients don't invest like everyone else, often having a significant portion of their wealth tied up in private company stock, real estate or a range of complex alternative assets, including cryptocurrencies, art and hedge funds.

Not every platform can make sense of those types of holdings, let alone integrate them with other, more vanilla investments. Complicating the picture is that the liabilities and insurance structures of uber-wealthy clients are in some cases just as elaborate as their investments, if not more so.

All this speaks to the need for a platform with the flexibility to reconcile what is typically a highly complex net-worth picture for each family or family unit. That means not only having the ability to integrate data from virtually any global financial institution but also being flexible enough to accept it from new and off-book sources as clients' needs and priorities shift.

DEPTH OF CAPABILITIES

Being able to consume data from multiple sources is only one part of the equation. Making sense of it all and turning that data into action is what really provides value.

 On a high level, that means:

• Giving clients a holistic, all-inclusive picture of their net worth across various perspectives, covering interconnected multigenerational households with complex partial ownership structures.

• Reporting data cleanly and simply, slicing and dicing a client's gains and losses with as much, or as little, granularity as they wish and being able to consistently "look through" funds and investment pools to determine exposure concentrations.

• Filtering specified investment holdings, including concentrated positions, legacy investments and externally managed assets.

• Assessing the inherent risk in a portfolio, or parts of it, given various worst-case market scenarios, including asset class-specific analytics to evaluate illiquid holdings that are notoriously difficult to analyze.

• Integrating clients' investment goals, mandates and legacy planning into their portfolio construction strategies.

HAVING IT BOTH WAYS

No doubt, it's a challenging task to create a platform that is sufficiently sophisticated to help advisors manage the elaborate needs of high- and ultra-high-net-worth families yet flexible and versatile enough to adapt quickly when such needs shift.

In the end, though, family offices don't have to either build it or buy it. They can have it both ways if a provider has the right foundational tools from the beginning.

Dr. Andy Aziz is the executive vice president of business development at d1g1t, a Toronto-based enterprise wealth management platform.