The research, which was carried out on behalf of Northern Trust by Scorpio Partnership, an independent, London-based, wealth management strategy consultancy, was conducted amongst family offices and family office intermediaries in Switzerland, working with families with at least €60 million (US$75 million) of assets advised in Switzerland.
The research showed that the most pressing strategic imperative of the family offices interviewed is the provision of detailed, consolidated reporting to family members.
"At present, this process seems to be hindered by a lack of transparency and poor quality data from some managers and custodian banks, as well as the lack of tailored systems within the family offices themselves to handle the complex investment accounting necessary to the task," observed Lucille Knapp, Head of Wealth Management EMEA, Northern Trust. "The role of sophisticated, robust technology in improving data quality, format, delivery and eventual processing cannot be underestimated it's critical," Knapp emphasised.
The research also showed that, overall, respondents felt that outsourcing the family office's back-office operations would lead to more effective risk management whilst freeing up resource both human and financial within the family office to focus on core activities, such as the provision of investment management and investment advisory services to family members. Respondents indicated that the outsourcing of asset administration processes is seen as an efficient solution to the problem of the high costs associated with the ongoing development and maintenance of leading-edge technologies. These are needed to support complex investment strategies and to meet increasingly demanding requirements from family members for more frequent and transparent reporting.
"The changing dynamics of the wealth management industry in the last five years has thrown the spotlight onto the role of family offices as providers of independent services to wealthy families, yet the future shape of the family office segment in Europe remains unclear," commented Sebastian Dovey, Managing Partner and Head of Consulting at Scorpio Partnership. "However, the trends highlighted by this research do clearly point to a major change in the attitude of Swiss family offices regarding the provision of custody and fund administration services by third party asset servicing specialists as, traditionally, Swiss family offices have tended to perform back office functions in-house, mainly for reasons of confidentiality," continued Dovey.
The most notable trend highlighted by the research was the acknowledgement that outsourcing may be an effective solution to the problems in the back office and, therefore, that many Swiss family offices are starting to seek third party partners for their asset servicing needs.
Lucille Knapp said, "Our findings demonstrate that Swiss family offices are seeking to improve the efficiency of their back office processes through improving data quality and by moving towards automated solutions to their investment accounting and data aggregation challenges. We at Northern Trust have developed innovative solutions and our projected total technology spend over the next three years is approximately $900 million, to ensure enhanced administrative efficiency for our clients. Most family offices would not wish to invest this much in developing proprietary asset administration technology."
Knapp concluded, "The Swiss family office segment is a market in transition. Looking ahead to the future, outsourced solutions for the middle- and back-office operations of a typical Swiss family office are increasingly likely to become the norm."