Management's highest priority is profitability1 and profits depend mostly on pricing2, according to two recent studies of the multi-family office industry. Good pricing is principally a function of the internal costs of labor, capital, and technology. Currently, many multi-family offices (MFOs) consider the short supply of qualified labor as their primary concern.3 Similarly, single-family office (SFO) executives have to contend with the short supply of qualified personnel while they must efficiently deliver quality service to keep their family owners satisfied. These labor concerns are long-term problems that need long-term solutions. One solution is to improve labor productivity by increasing technology use. By investing in back office technology, SFO's service quality increases, and MFOs improve their profitability.

The demand for back office technology to service high-net-worth clients is increasing4 as the number of high-net-worth families has grown.5 But many MFOs and financial institutions also are working to satisfy demand from less wealthy clients with a scaled down family office offering. Fortunately, there are a number of suppliers — some well known and some new entrants — that want to satisfy the need of family offices for back office delivery systems. At one end of the spectrum, some high-end providers are creating “lite” versions of their fully integrated back office solution in order to move downstream.6 At the other end, some mass-market providers are moving upstream by enhancing their offering to appeal to the high-end client.7

SFOs and MFOs alike eventually need to make a decision about new technology. As they start upgrading, they'll realize that the marketplace offers many solutions. Upgrading or implementing a new operations and technology platform involves important decisions, ones that a family office business will live with for a longtime. Because each solution has its own advantages and disadvantages, the goal is to choose one that is tailored to fit a particular family office's needs. Remember, when it comes to technology, one size does not fit all.


Investment management is usually a family office's most important function. And investment-related information must be controlled for proper decision making and reporting, whether the assets involved are traditional or alternative, managed directly or through a fund of funds, or analyzed by external investment consultants or an in-house investment staff.

In a typical family office, there are seven major functions in the investment information flow: (1) data gathering and reconciliation; (2) portfolio management and investment accounting; (3) investment analytics; (4) general ledger accounting; (5) accounts payable processing; (6) trust accounting and administration; and (7) partnership accounting. Not all of these functions are important to every family office in equal measure. To make the right decision about which technology to choose, it's fundamental for an office to know and identify which functions are important to it. (See “Investment Information Flow,” p. 59.)

So, before buying new technology software, use a formal Request for Proposal (RFP) process. A typical RFP process takes from four to 12 months, depending upon the complexity of the back office and other business requirements. For a successful technology RFP, follow 10 basic steps. (See “The RFP Process,” p. 60.)

If investment information is a priority in your office, you would need a technology platform that supports the exchange of investment information among family members, the family office and its trusted advisors. It's common to use email, family websites and file sharing to exchange information. Using encrypted software, information can be transmitted electronically to track meeting dates; contact information; advisor details and status reports; investment summaries and information; trust and legal issues; action item lists; communication materials; and tax compliance documentation.

“Providing comprehensive family office services for wealthy clients requires tracking a tremendous amount of data,” says Keith Vernon, a principal at Seattle-based Bristlecone Advisors, an MFO of 21 families that created Aristata software for its clients and now markets the software to others.

Bristlecone Advisors uses Aristata as a database of banking, investment, insurance and other information for its clients to access.8 In addition to standard tracking of contacts, tasks and meetings, says Vernon, “we document our meeting notes, key tasks and electronically scan all documents and tie them to our meeting record.” That's not all. Says Vernon, “we also summarize the key decisions and assign tasks to ensure that we execute per the decisions made in the meeting. One or two years later, when we meet again to review and update the estate plan, we start the annual review by emailing the meeting notes and documents from the prior meeting. This ensures that everyone is refreshed on our prior planning and key decisions, and that we can always be forward looking knowing that we documented and executed on our prior plans.”

There are two key benefits to this effort:they can easily access all client information and share this information with all of the client's external advisors. “These efficiencies drive more coordinated and effective comprehensive wealth management strategies which directly benefit our clients,” Vernon says.

Knowledge and content management tools like the ones used by Bristlecone Advisors are the first steps in building the virtual service network of the future. Virtual service networks9 to aid communication and collaboration increase the productivity of providers and deepen the links between family members.


The majority of family offices, be they SFOs or MFOs, pursue one of three basic technology solutions:

  • out-sourced solutions provided by commercial entities like custodial banks, multi-family offices, and technology manufacturers;

  • in-house “best of breed” collections of commercially available software installed locally or used via an application service provider; or

  • in-house custom programming efforts that focus on specific and unique needs of the family office.

These approaches have different benefits, costs, risks and opportunities and present different challenges to the family office considering change. (See “What's Best for Your Family Office?” p. 61.)

Outsourcing is probably best for family offices that need to implement a new solution quickly; favor low involvement of internal staff in back-office processing; and don't need to physically control their data. In-house programming may better suit family offices that have special asset management or operating requirements and can't find any acceptable solution already in the marketplace.

But many family offices take the middle path of staying in-house and building a “best of breed” solution by integrating commercially available applications. This middle path doesn't exclude using custodial banks or programmers for special reporting requirements or operating processes. It does, though, reflect the reality that the family office is the integration and control point for family data. Building the “best of breed” requires internal expertise and forces the family office to focus a great deal on operations and technology. Of course, many family offices neither need nor want to spend the resources required to do this; for them, outsourcing the solution is the way to go.


Investment data aggregation and portfolio accounting are key activities for most family offices. Many family offices use bank custodians for investment accounting together with a third party investment consultant as their external chief investment officer. When outsourcing these key activities to a bank and an investment consultant, the family office acts as the integration point for investment decision making and control.

When custodians hold the assets in their system, they get high marks for data gathering and reconciliation and for portfolio management, fiduciary accounting, and reporting. But most custodians don't have an easy way to account for and report on assets outside of their direct control and typically require the family office provide them with information about held-away assets. The family office already has to collect the information and provide it to the custodian as a line item for reporting purposes. When a family office has multiple custodians, a different kind of outsourced back office and technology platform provider can help.

Rockefeller & Co. RockIT is a good example of an outsourcing firm offering pure back office service technology to family offices. The RockIT platform has been built during the past 10 years by combining the capability of trust, accounting, investment management, and reporting systems.10 Clients can download current holding and transaction data everyday, and review statements posted to the Internet within 48 hours of the close of a period.

WealthTouch is another outsourcing firm available to family offices. Combining data gathering from investment advisors, portfolio management, general ledger accounting, and bill payment, WealthTouch presents an alternative to building an in-house solution.11 The WealthTouch expense management service provides a systematic process to receive vendor invoices, obtain approval before paying invoices, and making disbursements. The WealthTouch investment management system also provides a consolidated, fair market value portfolio reporting online.

MFOs and registered investment advisors (RIAs) that need a sophisticated wealth management solution can consider Fortigent, a Lydian Company.12 In addition to back office investment services, Fortigent provides institutional quality investment advice using proprietary software and technology delivery systems.

Outsourcing can be a relatively inexpensive turnkey solution, because there is little or no need for in-house information technology (IT) or operations support. But it may have strings attached and can represent a loss of immediate control over family data and decision making. Often, technology providers are captives of larger financial institutions or money management firms that expect the family office will buy certain investment products. This may be a conflict of interest. Similarly, some family offices don't want any other firm to ‘know everything there is to know’ about the family's affairs.


The “best of breed” solution is not always expensive to implement. In fact, for many family offices, this solution is a combination of Excel and Quicken, QuickBooks or Peachtree accounting software. It's fine if scalability and data integrity are not immediate concerns. In fact, even though it's labor intensive, this solution provides great value and real flexibility at a very low cost.

But even with more expensive approaches, creating your own in-house collection of “best of breed” solutions can be relatively inexpensive. With this mix-and-match approach, you can tailor the solution to your needs and your budget. With a “best of breed” approach you get the best available technology to suit your needs and can upgrade components independently, without a complete overhaul of your technology. The downside, however, is that you'll probably need someone in-house to manage the technology, because the components need to be compatible and maintained properly.

Schwab Portfolio Center13 and Advent Axys14 are two of the leading solutions for trading and portfolio management. It's estimated that Portfolio Center and Axys dominate the advisor market with about 80% of the market share.15 SunGard Charlotte,16 a trust accounting and portfolio management solution, SunGard Investran,17 a partnership accounting system, and SS&C Total Return,18 an integrated portfolio management, general ledger and partnership accounting solution are also popular family office back office solutions providers. You can also consider Financial Navigator,19 a general ledger and portfolio management solution, and Fairway Financial,20 a portfolio accounting and general ledger system.

Several family offices already have felt the results of these technology solutions — and all for the better. Craig Blank, an investment analyst at Pittsburgh's SFO Woodland Partners, has been using BackStop21 hedge fund investment management software for about six months. Blank notes that his search for a platform to replace Excel took about a year to complete. Woodland Partners selected BackStop because it suited their investment portfolio of hedge funds. Blank says that back office productivity is on the rise as a result of BackStop, and he expects “to see more productivity gains in the coming months.”

Scott Neff, a principal of Louisville, Ky.-based MFO Glenview Trust Company,22 uses InvestEdge23 portfolio management and reporting software. “Back office productivity has improved about 20 percent per year since we began using InvestEdge several years ago,” says Neff.

Similarly, Josh Fidler, executive of his family office and private equity firm, Boulder Ventures,24 sees real productivity gains since December 2004 when he started using outsource service provider Private Client Resources25 for reporting. “PCR streamlined our evaluation of manager performance and asset allocation,” Fidler says. “Previously, we would wait to receive the data until weeks after quarter's end; then we would have to run spreadsheets to adjust for funds flows; then calculate performance per account; then retrieve appropriate benchmark data, and then prepare the reports in Excel, entering all the numbers by hand. Now, we get the correct data automatically at quarter's end.”

Fidler also has seen substantial productivity gains from using the software in his back office. “Preparation of month-end reports for six second-generation family members, 16 third-generation family members and numerous other entities, like trusts and foundations, is now a click-and-print function, where it used to take a week or more for two people,” he says.


Most family offices don't want to start designing and building their own technology solutions by writing software. After all, most family offices don't want to get into the software business. But if the demands of the portfolio or investment management can't be met by existing software, some offices have no choice but to build their own solutions. In fact, many outsource solutions like Aristata and RockIT started as in-house programming projects to solve a problem for the family office that couldn't be solved by software available in the marketplace.

All successful family offices use the best tools within their budget, combining custodial banking systems, outsource solutions, third-party reporting systems, communications and collaboration tools, in-house applications, and custom programming, together with a thoughtful management approach to the process. An investment in technology can improve the productivity of labor in the family office that improves the quality of service and profitability. Bottom line: family offices that made prudent investments in back office technology and operations have improved their business performance.


  1. Hannah Shaw Grove and Russ Alan Prince, “Onward, Downward,” Registered Rep., September 2004.
  2. Elizabeth Bloomer Nesvold, “How to Make Money in Wealth Management,” Trust & Estates, August 2004, at p. 42.
  3. Kieren Beer, “Friends of the Family,” Bloomberg Wealth Manager, September 2004.
  4. Joel P. Bruckenstein, “Catch of the Day,” Bloomberg Wealth Manager, April 2005.
  5. While there is no formal counting of family offices, there's estimated to be about 3,000 to 4,000 family offices in the United States. The Merrill Lynch Capgemini 2005 World Wealth Report notes that worldwide there were over 78,000 ultra-high-net-worth individuals (each with over $30 million) last year, up about 9 percent over 2003.
  6. In recent years, Rockefeller & Co. has made its RockIT technology platform available to families and family offices after developing the proprietary technology for the Rockefeller family.
  7. In early 2004, Fidelity Investments created a new family office group, and according to Private Asset Management was “analyzing the ways to provide account aggregation and consolidation services, which would enable family offices to track all of their assets no matter where they are custodied.” Private Asset Management, Feb. 2, 2004.
  8. See Bristlecone Advisors,
  9. The Merrill Lynch Capgemini 2005 World Wealth Report sees virtual service networks and the benefits they bring to providers and clients as the next big thing.
  15. Tom Philpott, “Advent Ditches Techfi, Leaving Some Advisers in Tech Quandary,” www.financialplaning. com/pubs/fpi/20050509102.htm.


How to handle the request for proposal and beyond. Ten steps to success

Step 1: Set levels with project stakeholders to obtain agreement on various scope issues.

Step 2: Analyze needs to obtain relevant detail on business plans to develop materials to communicate with potential solution providers.

Step 3: Formalize business requirements using the information already gathered in sufficient detail for the development of an RFP, including prioritizing specific functions and features.

Step 4: Develop RFP for distribution to potential vendors.

Step 5: Identify vendors and filter their initial responses to create a vendor “short list.”

Step 6: Select the best vendor from the short list by applying the criteria identified in the RFP.

Step 7: Ensure systems readiness by creating a set of tasks that must be completed to guarantee that the system is “qualified” within the customer environment.

Step 8: Ensure organizational readiness for family office by creating a set of tasks that must be completed to guarantee that the office is ready to effectively utilize the system, including policies and procedures.

Step 9: Implement the new system, including legacy systems conversion and user training.

Step 10: Perform a post implementation review to grade the entire RFP process for quality of service, user satisfaction, costs, and timeliness.

Source: Family Office Metrics, LLC


Each of the three technology solutions have benefits, costs and risks

Integrated Solution Provider
“Best of Breed”
Custom Programming
Main Benefit Easiest to implement because it's virtually a turnkey system Off-the-shelf solution allows you to prioritize according to your needs Custom-made to fit requirements for special situations where no provider exists
Main Challenge Finding the right partner for the long term (minimizing quid pro quos and conflicts of interest) Integrating the systems at the start and ongoing as new versions are released Managing software development (you are in the software business)
Business Risk Very low to start but future fee increases are a possibility (when the cost of change is higher to family office) Medium because you have bought products and are responsible for their implementation High, because you are responsible for code, maintenance, and the research to stay current
Flexibility Least (but still may be good enough) Good (modular design allows adjustments) Most (if tailoring a system specifically for your purposes)
Speed to Implementation Fast (up to 6 months) Moderate (6-12 months) Slow (12-24 months)
Staffing No in-house financial systems staff In-house financial systems staff to manage (usually the financial officer) In-house financial systems staff and programmers
Quid Pro Quo Some investment management is often a requirement None None
Costs (not including legacy system conversion costs) 20-25 basis points per year (negotiable, but budget about $150,000 per year at minimum), plus $100,000 for setup One time $300,000+ for software install and process re-engineering, plus $75,000 per year software maintenance Investment over several years of $500,000+ plus $100,000 per year software maintenance
Maintenance Minimal Regular Ongoing
Source: Family Office Metrics, LLC

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