Mark Blumenthal: Natalie and Jack, thank you both for taking time out from serving our clients in the middle of the coronavirus pandemic (COVID-19) to talk about your thoughts on the family office industry. It’s not only important that we are able to help our clients navigate through this crisis, but that we begin to focus on the future and the new normal for family offices and the solutions that we can provide.
The value proposition of the family office is being tested. When we look back, the best-in-class family offices will have helped their clients and employees through this pandemic by adapting to the current unique challenges and continuing to execute critical day-to-day functions.
How are family offices coping with COVID-19?
Jack Kristan: I don’t think anyone contemplated a world in which we all would be working remote for an extended period like this. Fortunately, organizations reacted quickly to protect the health and safety of their employees. Family offices are realizing that having a strong operating framework is crucial to business continuity while others are finding some cracks in their operations.
It’s critical for family offices to begin thinking about the other side of COVID-19 in phases:
- Respond — Family offices need to be nimble and open to new ways of running their operations. For many, this includes sending personnel home to work remotely, which demands new and additional IT considerations around access, infrastructure, and system and data security.
- Restart — Steps taken during the crisis will lay the foundation to promptly restart operations as the situation begins to stabilize.
- Future preparations — Conduct an after-action review to learn what improvements can be made to minimize future disruptions. Putting an effective business continuity plan in place should be a top priority.
Natalie Schwarz: I agree with Jack; this pandemic is first and foremost about people and their health and safety. For family offices and their advisors, this means working from home. To successfully work remotely requires the right tools, training, software, hardware, and technology integration. This can include everything from infrastructure like speedy Wi-Fi to cloud-based enterprise applications to keep day-to-day operations running. I have heard of a few family offices that were recently struggling just to buy laptops and monitors.
Mark Blumenthal: I agree with both of you that this is a very human crisis. Only after dealing with the human side can family offices transition to other issues.
I believe that most family offices are well positioned to ride out the economic storm. Most have adequate cash reserves, and many are sticking with their asset allocations and existing investment policies.
Some of the other items that families are proactively thinking about are their plans this year relating to charity, taxes, and wealth transfer.
Some families are now or will soon consider wealth transfer strategies to take advantage of the depressed valuations in the public and private markets, increased liquidity discounts, and historically low interest rates. This is déjà vu back to the 2008 financial crisis, but with a very different feel.
What are some lessons learned from Plante Moran’s mobilization to a stay-at-home workforce?
MB: We were able to quickly convert to a mobile workforce because we had a plan in place and Plante Moran made significant investments in technology. We were ahead of the game by already working remotely from client sites, and many of our staff work from home. We maintain a work environment that’s paperless, exclusively use laptops, and have a collaborative culture.
For family offices, the importance of the investment in a remote infrastructure wouldn’t have been obvious before this crisis.
JK: Some family offices are struggling through this pandemic to get through routine daily functions. Being part of a firm that has a flexible and adaptive culture has helped me be a better consultant as we work with these families to create new mobile work environments.
NS: Our collaborative and paperless culture is made possible with tools like Microsoft SharePoint, which allows users to easily and securely share documents. We use remote communications by leveraging tools, including Skype for Business, Microsoft Teams, and Zoom.
How do you see family offices evolving as a result of COVID-19?
MB: There will likely be a paradigm shift in the notion that to be productive, you must be physically in the same office. I believe that there is a real benefit from having face-to-face meetings, and we try to do this as often as we can. But even before COVID-19, the reality of travel schedules for family members and trusted advisors located all over the world makes this harder to achieve. More single-family offices will slowly shift to a hybrid-family office model with the resurgence of outsourcing and growing acceptance of a talented mobile workforce.
JK: I agree with Mark about the shift toward the hybrid model, but this shift will also require new procedures and controls. You have a bigger talent pool of staff and outsourced service providers if you’re not restricting yourself to a specific geography, but you also have new challenges for oversight, governance, and culture. That is why the hybrid model allows flexibility to customize an operating model that’s unique to the specific needs of one family office.
NS: There are a lot of technologies and support strategies available to assist those family offices in their move away from doing everything in-house. There will be an increased reliance on outsourcing IT roles and responsibilities, including help desk and hardware and software maintenance.
What are the implications on operational excellence in a shift to a more mobile environment?
JK: You must be confident in your team to completely convert the way you conduct operations. You’ve got to have that underlying policy, practice, and procedure, and should know how to leverage technology so that you can be operationally excellent, and still provide the level of service that your families expect. I know that’s easier said, than done.
MB: I know a lot of the family offices have a heavy reliance on paper. Often when we’re performing internal control reviews or operational consulting projects, we’re handed binders of documentation. After COVID-19, there will be a push to move to electronic documentation and electronic online approvals and controls.
NS: There are a host of cloud-based solutions that allow family offices to move from paper or a local drive to secure electronic document storage and workflows, including OnBase, Laserfiche, FileNet, and DocuWare. It’s imperative for family offices to design a governance structure and solid framework when setting up these systems. Technology can only do so much, it’s the people and process that must be in place to get the most out of technology investments.
As family offices think ahead to the future, what are some of the most significant changes you see from an IT perspective?
NS: Most family offices run systems for financial and investment management; however, they still push paper and perform manual-based processes. Individuals often feel their system is cumbersome and not intuitive, so they only use part of it combined with manual processes to get the work done. Modern cloud-based financial systems like Microsoft Business Central and NetSuite are among many that have new and robust functionality. The use and security of the cloud has been a major topic of debate in the industry — I think the debate is now over as the cloud is very secure and used by most businesses today.
JK: There is an increased focus on cybersecurity as bad actors are looking to take advantage of the pandemic. A commonsense approach to cybersecurity will go a long way, including strong passwords and not hesitating to pick up the phone to confirm the legitimacy of an email.
What are the implications for disaster recovery and business continuity plans?
JK: None of us foresaw the current situation we are in. It emphasizes the need to not just have a plan, but to examine, test, and refresh those plans regularly. If you do, you’ll find holes along the way, which gives the family office insight as to how to fix them.
MB: I was thinking about our family office engagements that focus on identifying risks and the work we do to help mitigate those risks. Succession and continuity from changes in leadership or family governance is commonly a high risk. However, in the future, disaster recovery and the ability to function as a remote organization will move up the list as an immediate action item.
What other trends have you seen in family offices that will be impacted by the current crisis?
MB: In the last few years, we have been witnessing the impact on family offices of the retirement of the baby boomers. Some families cannot find a next-generation family member interested in actively participating in a leadership or oversight role. Similarly, key employees and outside advisors are retiring and replacing these talented and niche roles is very difficult. This retirement wave has challenged many family offices to consider how to evolve into something else.
Combining the need of the family office to function at times of crisis without a physical office and the retirement wave, may change the family office model in the future. Some family offices have or may soon consider moving into a multifamily office; most, however, may create new governance structures, upgrade their technology, hire new talented staff both locally and remotely, and utilize more outsourced services.
JK: There has been an uptick for years in the number of family offices that have been interested in improving their operational excellence and internal controls. Now, I believe that we will see a major shift to more cloud-enabled platforms that will support a more flexible work environment; this will bring forth a round of evaluating governance and operations of the family office so that the family maintains its confidence in the safeguarding of its assets.
NS: Although not currently a common trend in the family office, disruptive technologies such as artificial intelligence will continue to emerge in every industry. Once family offices become comfortable with the idea of technology replacing manual data entry or repetitive processes and tasks, they will see how much value they can bring by allowing their people to focus on more value-added activities, like servicing their clients.
MB: I am hopeful that in the future, we’re going to look back and see the value proposition of the family office — how the family office can, not only be effective in times of crisis, but how the best-in-class family office model of the future has evolved.