SaaS and the Family Office: meeting the needs of next-gen clients and the regulator

A cloud-based, SaaS model allows for unrivaled flexibility, automation and timeliness for a younger generation of clients who expect real-time access to their investments.

As family offices face increasing capacity issues and operational complexity, their need to adapt and adopt strategies for better organisational efficiency increases. Nowhere is this more visible than in the middle office. Here the need for better reporting has dovetailed with the next generation in wealthy families taking the helm. Their reporting demands, for themselves and for the regulator, are more detailed and frequent. Software as a Service (SaaS) technology ticks the box of being customisable and being able to provide detailed data over a variety of channels and at a time of the end user’s choosing — something that is essential in today’s globalised world, where younger investors expect instant access to their portfolio no matter where they are.

Indeed, the scope of the middle office has broadened: investment types have diversified, reporting requirement have become more complex and more frequent and the amount of counterparties has also increased. As a result, many have become overwhelmed with the sheer mass of data they receive and the need to produce an end result that is accurate, fit for purpose, timely and verifiable.

Imad Warde, ‎Founder and CEO of Hedgeguard, a portfolio management vendor with its roots in the hedge fund industry, comments: “This is an area that has been neglected by the average family office. The internal know-how, procedures and processes are often ad hoc, fragmented and just lacking generally. All efforts have been around the investment process and on generating alpha at the expense of the middle office.”

Historically, middle office functions have been carried out in house. But getting the right software to do this has not always been easy, and vendors have been hard pushed to meet the bespoke demands of a family office with products that are essentially designed for larger wealth managers.

Indeed, software vendors have a business model that relies on providing ‘off the shelf’ solutions for banks, rather than truly customised solutions unique to each family office. Because a family office deals with only the assets of the family or the families it serves, its structure is fundamentally different from a large corporate private bank or wealth manager. And each family office differs in terms of its size, scope and organisation. For vendors this means that a single, one-size-fits-all solution cannot be applied to the family office sector. Having a product that can be tweaked to fit each family office’s structure and scope is, a lot of the time, simply not commercially viable.

Dennis Mangalindan, Vice President, Archway — a SaaS provider known for its family office provision — comments: “Family offices’ needs, and consequently their challenges, differ greatly from their investment advisory, fund and private banking counterparts where there is a great deal of similarity in terms of structure and scope. Each family office has a high degree of variability in function, process and data requirements. Many family offices default to employing multiple, disparate applications, constituting some combination of spreadsheets, general ledger platforms and portfolio management tools. These cobbled-together systems each require a significant amount of manual upkeep and inherently lack integration, ultimately resulting in a complete absence of control and efficiency.”

Happily, technological change has intervened and family offices are now well-placed to retake control of their own middle office functions through the benefits of a cloud-based, SaaS model.

Mangalindan explains: “Software as a Service offers a more appealing channel for managing middle office functions due to its global, ‘always on’ approach. As a result, family offices are able to provide information when and where the family requests it. They also eliminate much of the manual data management this industry has come to know. When vendors are able to marry integrated, all-in-one platforms with internet distribution, these web-based solutions allow for unrivaled flexibility, automation and timeliness.”

As well as being able to fulfil the functions specific to the middle office, a SaaS offering can also connect to other areas of the family office.

Mangalindan comments: “SaaS delivers optimal connectivity between systems and data sources and requires limited, if any, onsite IT support. With the onus of data integrity placed on the SaaS vendor, family offices are free to focus on more important family office responsibilities – from educating family members to protecting and growing family wealth.”

The whole concept behind SaaS is that the system is held and maintained remotely. Integral to this working positively for the family office is the idea that the data run upon them is held in a single ‘golden’ copy. This means that everyone uses the same data and that no matter where the data ends up and how it is used, its provenance, accuracy and journey through SaaS applications can always be proven. This is essential in today’s regulatory environment. It also meets the needs of the next generation of family office members who expect real-time access to their investments.

Warde comments: “Cloud and SaaS technology means that the same data can be held and used by both and then the same data can be used for a variety of functions: trade management, fx, margin calls, collateral, NAV and NAV validation plus corporate actions. Other functions like investor reporting, compliance, profit and loss, stress testing and regulatory reporting can also access the single data set and use it for their own purposes.

The cloud means that data can be accessed from wherever the end user happens to be. The system holds the data and is flexible enough to communicate via device, as opposed to physical location. This is all about engagement and suits the demand of the younger ‘tech savvy’ generation well.

The new generation is all about access when they choose and how they choose.”

Mangalindan adds: “Accessible via tablets and smartphones, these portals provide instantaneous access to the family member’s complete financial picture in a manner that allows them to keep pace with their ever-changing lifestyles. Younger generations are more in tune with technology and demand that their service providers meet these expectations. I think SaaS offers a good match for their needs.”

Alison Ebbage, Contributing Writer

Credits: WEALTH-X www.wealthx.com

 

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