Family Wealth Reporting - Family Office Services
/The effective management of family wealth requires numerous and frequently integrated considerations. In July of 2021, John Sleeting authored an article for our client-only Thought Leadership Library titled “What are Multi Family Office Services?” In this piece, he laid out the 10 overarching service offerings of the best in class multi-family office firms. These included Investment Portfolio Management, Consolidated Reporting & Technology, Risk Management, Integrated Financial Planning and Wealth Strategy, Estate & Wealth Transfer, Fiduciary / Trustee Services, Tax Planning Preparation & Compliance, Strategic Philanthropy & Administration, Family Consulting, Governance, Meetings & Education, and Lifestyle Management.
This piece will focus on consolidated reporting and technology for managing family wealth. Across every level of wealth, it is important to have continuous insight on the immediate financial picture of the family. As the scale and complexity of wealth increases, so does the need for the ability to observe the totality of the balance sheet. Similar to an air traffic controller, it is imperative that a family office team have the ability to monitor each element of the assets and liabilities of the families they serve.
Consolidated reporting is a foundational necessity for an effective wealth plan and the achievement of favorable outcomes. It enables effective decision making, on a micro and macro level, and serves as the road map for both intermediate-term planning and long-term intergenerational wealth transfer. This process is made more complex by the fact that a typical family office client will have a variety of asset classes located across various legal entities and geographical jurisdictions.
What does it look like?
Properly structured reporting and technology enables a family office client to access a secure portal to conveniently review key metrics relative to their net worth, at any given moment in time. They should be able to easily determine available liquidity, review asset allocations, both inside and outside the taxable estate, and analyze critical performance data.
As it relates to different asset types, some will fluctuate daily (publicly traded investments) and others will update periodically (a note receivable). No matter what the schedule or frequency, the data must be accurate, organized, and presented in a user-friendly format.
There are many benefits to comprehensive reporting and technology making this type of platform one of the ten non-negotiable service offerings of family office firms identified by the Family Wealth Alliance. There are three primary components of household net worth reporting.
Household Asset Allocation. Asset allocation is typically thought about on a strategy-by-strategy basis. For family office clientele, asset allocation is far more intricate than the simple mix of equities, bonds, and cash in a portfolio strategy. The overall household investment strategy often also includes a mix of real estate holdings, privately held businesses, cryptocurrency, collectibles and more. Having convenient access to the household’s asset allocation facilitates proper risk management procedures, specific diversification measures, and advanced tax strategies.
Ownership of Family Entities. As a family's wealth increases so does the complexity of ownership of the various assets. A typical family with a net worth of $5 million may have a relatively simple asset ownership structure such as jointly held assets or assets registered to revocable living trusts. As wealth eclipses $30 million this ownership becomes increasingly tailored to a wider range of sophisticated objectives. The family’s balance sheet typically encompasses a wide range of trusts, private holding companies, and multiple generations of individuals. Advanced estate planning strategies require an accurate accounting of how assets are registered to the specific entities within the family wealth structure.
Customized Performance Reporting. In a typical family office composition, there are often two or more generations of family assets. For example, this could include the first the generation of the family who founded a company, currently being operated by members of the second generation, who have recently welcomed a third generation of children into the family name. Given the complexity, sensitivity, and compliance-related issues surrounding intricate family ownership structures, it is imperative to have systems in place that can offer flexibility and customization to assorted wealth views for various generations and individuals of the family. Therefore, we architect each family’s layout to be customized to their preferences.
Current state of consolidated reporting and technology
Current family office standards require this “living balance sheet” to offer a combination of aggregated variable assets and manually organized real assets. Real assets, such as difficult to appraise real estate or exotic car collections, are combined with digitally available data feeds from institutions such as banks, lenders, asset managers, and credit card companies.
Clearwater Capital’s family office team excels at constructing customized portal access for respective family members relative to their preferences for organization, structure, titling, and appearance. This tailored portal is maintained with the highest cybersecurity protocols and is securely accessible online and through mobile devices and easily produced physically for in person meetings. This portal construction process includes the Clearwater Capital Team aggregating in all digitally available data feeds from institutions such as banks, lenders, credit card companies, etc. Next, the team begins manually building in some of the “unlinked” assets mentioned above.
Through a sophisticated combination of automation and manual integration, each member of the client family will have a dashboard that suits their preference and allows them to monitor overall household net worth at any time on both desktop and mobile devices.
The future of consolidated reporting and technology
Real-time family wealth reporting and technology produces great value for the reasons outlined above. Few firms have mastered the challenge or have dedicated the resources to consolidate, organize, and aggregate in data feeds from potentially dozens of institutions. In order to organize data into analysis tools or models, consistency of formats is integral. At this point in time the format, delivery of information, and availability and timing of data fields differ across different providers. This can sometimes mean a high degree of ongoing maintenance and tending to the living family balance sheet. Currently, there is no universal standard that is available globally for data feeds. According to Citi Private Bank this progress is slowed by international data restrictions, regulations, divergent software methodologies across providers and regions, and rapidly evolving data protection standards.
All consolidated reporting platforms must be built to be non-transactional. Said another way, they should provide “view only” access to data with no opportunities to buy, sell, transfer, or manipulate any asset or liability aggregated into the system.
An additional point of clarity revolves around the transmission of data. Any time data is being shared, especially financial data, across platforms it is imperative that the data is transmitted safely. Ironically, the current measures to assure secure data transmission also represent one of the potential areas for improvement. Currently, through a myriad of API’s, these systems will utilize built in security protocols from the host institution. This means utilizing that institution’s password, multi-factor authentication, etc. While this does provide secure transmission of data, it lacks in the category of user experience. Each time a password, passcode, security phrase is changed, it can potentially result in the data stream being disrupted. A major opportunity exists for an equally secure connection that is less prone to disruption.
Having an effective and repeatable way to keep real-time tabs on a complicated balance sheet is not only convenient but is critical to managing a wealth plan for high-net-worth families. This capability enables family office professionals to facilitate decision making and to offer timely feedback to families. While technology and fintech have enabled tremendous success in this type of offering, there are still more opportunities for it to evolve into the future. As the need continues, technology will improve the overall ease and efficiency of building these real time reports for family office clientele.
