Options to manage your family office assets
If you need a consolidated reporting of all your assets, it can be challenging to get the whole picture right. Different options exist and the Intelligent Owner has met in London with René Raabe from Expersoft to discuss the issues created by a diversified asset base made of liquid (e.g. bank accounts, financial securities) and illiquid assets (e.g. property, art collection, alternative investments) that are spread out all over the world at a number of institutions and with multiple advisors.
Can you tell us about your company and your background?
Expersoft Systems is an independent, privately owned company providing solutions for family offices and financial institutions. Today more than 120 Family Offices worldwide rely on our proprietary PM1 software and approximately 3 Trillion USD of liquid and illiquid assets are managed through our solutions. I joined Expersoft as Head of Business Development in 2015 after working as the Managing Director of the Multi Family Office Arcavio Ltd. (Bank J. Safra Sarasin group) which provided services such as data management & consolidated reporting for bankable and non-bankable assets (using PM1 software suite from Expersoft Systems), family governance and the set up of family office structures for families in the Middle East, India, Singapore, Switzerland and Monaco.
What are the different options available to private individuals or family offices who need to get a consolidated view of their assets?
People who contact us are often using Excel Spreadsheets for consolidation, which is a comprehensible, low cost way of doing it. However it is a very limited option as data is static and very time consuming to maintain. For that reason Family Offices are looking for alternatives such as selecting a trust company, joining a Multi Family Office or deciding to rent or buy a software solution. From our experience we made the following observations:
Using Excel: In most cases people are using Excel Spreadsheets because it is the cheapest solution. Typically they have a smaller asset base that rarely exceeds 75 MUSD and a maximum of 3 custodians. The problems that they often face are linked to the static nature of the data, a high failure rate if the data is entered manually, very limited capabilities in terms of performance measurement (benchmark comparison, manager selection evaluation), complex formulas and macros, a slow system performance and local storage.
Using Trust Companies: From our observations clients like to use Trust companies when they have assets between USD 20 and 100 million, and in rare cases when they have assets above USD 100 million. They benefit from economies of scale with a combination of accounting and tax services. The cost of such services is very often priced by asset under administration and the typical range is 2 to 10 base points per annum. In a lot of cases there are limits in how much tailoring of the reporting can be done as, to ensure scale, most companies will prefer to offer a standard solution for all clients.
Using Multi Family Offices (MFO) : Most families who use MFOs have a net worth comprised between USD 30 MUSD and 300 MUSD. MFOs do not limit the type of asset classes and the number of custodians. The cost ranges from 5-15 base points for consolidation, but can go up to 25-30 bps when including advisory services. Similarly to Trust companies, clients profit from the scaling of cost but can be limited in the level of tailoring to specific needs, as they often offer a standard solution for all clients.
Using a software: More sophisticated families will prefer to use a software. In that regard Expersoft Systems offer different options:
SAAS (Software as a Service) – This is a standardized out-of-the box platform for families with assets between 30MUSD and 300MUSD. The cost would typically start from 45’000 USD p.a. depending on the number of user licenses and custodian interfaces for data feed. The advantages of this solution are a fast implementation (typically between 2 and 4 weeks), no IT infrastructure needed (hosted at Expersoft Systems data center in Switzerland), the possibility to access our back office services for data management, and the coverage of all asset classes. The main limit is linked to a standardized platform that only allows for limited customization.
Bespoke Environment hosted with Expersoft Systems – This solution is best suited for family offices with AuA/AuM of 300MUSD or higher. The environment is tailored to the individual client needs and the cost would start from 100’000 USD p.a.. The obvious advantage is the degree of customization that is possible and the hosting of the data with a FINMA compliant data center (Swiss Regulatory Authority). A client willing to take this route has to be aware of a higher implementation cost as this will involve a comprehensive ramp up project. Bespoke Environment with in-house hosting at the client’s premises – Some clients will prefer to host their data at their premises. The cost will be nearly the same as the hosted solution and the client will need to add the cost for his own IT infrastructure on top, which generally represents an additional cost of at least 250’000 USD p.a. as they will need to buy their own server infrastructure and hire IT staff.
What are the risks with using a software and what are the solutions to limit a data breach ?
When selecting a family office software, clients have to consider risks linked to who will have access to the data, what information will be shared and which actions can be performed. To limit the risk it is important to check : Where the data is hosted and stored. Who supervises and approves the security standard of a data center (e.g. Swiss Financial Regulatory Authority). Which user security attributes are needed to access the software (username, password, token) Does the family office software feature dedicated viewing rights per user and optional encryption of client personal data (e.g. name, contact details, address, account number, custodian bank name).
Can you give examples of what is possible with a solution like PM1 ?
PM1 allows a Family Office to perform multi-dimensional consolidation across unlimited levels. It features ad-hoc consolidation e.g. by family member, across multiple custodians or a valuation of the total wealth combining bankable and non-bankable assets (collections, private equity, real estate).
Some Family Offices switched from an Excel sheet approach to PM1 when they had the need to track their selected managers by comparing their mandate performance against predefined benchmarks. Through batched controlling jobs, PM1 also supports Family Offices to avoid violations of implemented investment strategies.
Beside their financial assets many beneficial owners are looking for the ability to digitize their collections. They have a need to create an electronic inventory of their collectibles and add the related documents such as pictures, contracts, insurance policies and expertise.
The family office of a famous art collector uses PM1 to maintain its art collection worth close to a billion USD. The periodic evaluation of the collection is linked to an art index provided by a specialised research company.
Another client who is a professional jewelry merchant entered the items of a 200 MUSD collection in PM1. The software has been extended with 2 additional fields where his Family Office can enter the item location and duration of stay, as parts of the collection are presented and sold at international exhibitions such as BaselWorld.
A key feature for Family Offices is the ability to model a family tree and display who has what role in the family, how people are related and what the individual exposure is for each family member. With its interactive Relationship Graph, Expersoft Systems offers a proven and very valuable solution for this specific need.