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Evolving Role Of Technology In Managing Family Assets

role of technology in managing family assets

India in the twenty-first century has experienced a dramatic increase in asset class diversity. This exponential change, in a short period of less than two decades, has underscored the importance of technology in managing family assets.

The end of the twentieth century witnessed a changing economic scenario with India opening up her borders. Over the years, several Government initiatives and a gradual easing of restrictions resulted in new asset classes being added to the portfolios of the ultra-wealthy.

The introduction of index and stock options and futures (2001-2002), introducing futures trading in all commodities (2003), currency derivatives (2008) and commodity options (2016) are some examples of new asset classes that have attracted large investments.

In addition, the Liberalized Remittances Scheme (2004) allowed resident individuals to remit funds abroad for permitted current or capital account transactions. The scheme was introduced with a modest limit of USD 25,000 which has since risen to USD 250,000 per annum.

New asset classes and the potential for global investment increased both portfolio diversity and complexity. Consolidating reports from a slew of sources, tracking investments across multiple asset classes and monitoring the effect of world events on currency and portfolio values has resulted in an asset management challenge for today’s family principals.

Globally, digitization and automation were the default solutions that emerged to handle large volumes of data. Process optimization using technological interventions was necessary to manage the diversity and complexity of data. Initially, generic technological solutions sufficed as they were being used in the backoffice by accountants and managers.

But over time the volume and complexity of data increased, and so did the demands and expectations of wealth owners. As a result, specialized asset management technology was designed and deployed not only to improve speed and accuracy of back office operations, but also to address the inevitable need for wealth owners to access real-time data and analytics.

Back End Wealth Owners
Ability to record and monitor multiple asset classes Quick and easy access to information
Multi-currency functionality A snapshot view
Faster processing of large volumes of data Improved reporting and analytics

Combined accounting and asset management

Privacy and security

Greater accuracy

Technology has kept pace with changing times. It has adapted to combine accounting and asset management onto the same platform to avoid duplication of data and effort. End-user functionality has been incorporated by using cloud platforms to provide anytime, anywhere access.

Many wealth owners are concerned about privacy and security of their data but they do not want to forego access convenience. Technology firms have delivered an effective solution by providing private cloud hosted services and SSL (Secure Sockets Layer) sites where the service provider has no access to user data.

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This creates an extra layer of separation and security, allowing users to “own their data”. Large families have the additional complexity of multiple tax entities, inter-company transactions, partnership holdings, strategic investments and more. At different times, different family members need to  view their holdings individually or collectively.

Manual calculations would require not only significant effort, but more crucially a time delay that might make the information worthless. Specialized asset management technology evolved to allow users to record and view multi-entity data on a single platform, thereby addressing the need for consolidated or individual reports at the click of a button.

Technology will have to continue to improve in order to process increasing volumes of data faster and more accurately. In these turbulent times of Brexit, America’s changing economic policies, demonetization, etc. technology is the only solution that provides timely information that enables users to measure the impact of events on their portfolio and take appropriate action.

Over the decades asset management technology has evolved from a mere back-end consolidator to an allround enabler. The true potential of technology in managing family assets lies in the quality and timeliness of the reports and analytics it provides.

These are what help wealth owners and wealth managers make smart decisions- about comparative performance, asset allocation, loss mitigation, tax management and more.

Globally, single and multi-family offices have rapidly adopted and upgraded technology to increase speed, reduce cost and improve reporting. India has lagged in technology adoption because the low labor costs have favored manpower over technology.

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However, the old fashioned manual process, with tedious compilation from multiple sources, complicated excel formulae and primitive reports, leaves wealth owners at the mercy of static, erroneous and delayed reports. With rapidly increasing complexity, even for wealth owners in India, the need to replace unscalable manual processes with technology has never been greater.

“When I was Director, SEI, we signed a prominent, successful family as a client; with assets of $600 million, numerous trusts and multiple beneficiaries. For decades they had done all their beneficiary distributions using Excel.

Eventually we loaded their data onto our accounting system. Every month we would call and tell them “your numbers are wrong” and they’d say “maybe it’s a system bug”. Finally they submitted their massive, convoluted spreadsheets for review.

We found out that seven years ago someone had cut-paste formulae incorrectly in Excel and so half of the family members had been receiving incorrect distributions for seven years. Thankfully they all got along and there were provisions within the trust that allowed us to correct the error over a period of time.

However a mistake like this can rip families apart, all because of their hesitance to invest in technology that has processes and controls in place
so things like that don’t happen.”

– Mark Rogozinski

CEO, Asset Vantage

The Indian scenario is slowly changing, partly because of the emergence of a significant number of ‘newmoney’ wealth owners. This group tends to study global best practices and then select the solution that best suits them. They are quick to evaluate the benefits of technology and adopt systems that combine the advantage of speed with accuracy to manage their personal wealth.

The older and larger group of wealth owners, with assets handed down over generations, cling to a longstanding, if old fashioned, manual way of managing their wealth. Within this group, the younger generation lives in a borderless world and is continuously exposed to technology in every walk of life. They are techsavvy, next-gen wealth owners who want fast, easy access to well presented information.

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Global exposure and peer to peer experience has made them aware of the speed, reliability and quality analytics of wealth management technology, that manpower alone will never be able to deliver. They are championing the use of technology to manage family assets, but have a tough task to overcome the resistance to change.

(Disclaimer: This is a guest post submitted on Techstory by Chirag Nanavati, Managing Director of Asset Vantage. All the contents and images in the article have been provided to Techstory by the authors of the article. Techstory is not responsible or liable for any content in this article.)

 

Image Source: accenture.com

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