The growth of AI and integration of AI technologies in family offices is rapidly expanding. One form in particular — generative AI — is attracting interest thanks to its much-publicized ability to simulate the learning and decision-making processes of the human brain. Using machine learning technologies and sophisticated algorithms, these tools can benefit family offices by extracting valuable information from a wide range of data sources, analyzing vast amounts of data quickly, and creating beneficial insights in several key areas.
- Risk management: AI technologies can support risk assessment and mitigation strategies by analyzing historical data, volatility, and economic trends in real time to help decision-makers identify threats, simulate various “what-if” scenarios, and create proactive strategies to safeguard assets.
- Operations: AI-driven automation tools have the potential to streamline administrative tasks and reduce manual errors in areas such as document processing, tax reporting, compliance monitoring, and communications. AI’s natural language processing technologies can also extract actionable information from emails, investment reports, legal documents, tax filings, and other sources of data to provide more real-time data, saving time and resources.
- Alternative investments: Investments in private equity, venture capital, and real estate play an important role in some family offices. These sophisticated investments typically involve cross functional areas such as investment research, due diligence, tax, and accounting. Related to alternative investments, AI can help track valuations, contributions/distributions, report performance, benchmark, and assess exposures for private portfolios — all valid use cases. It can also analyze legal documents and tax statements during the due diligence process and during the life of an investment.
While AI holds tremendous promise for the family office, it’s important to recognize the substantial hype in the marketplace. AI technologies are evolving rapidly, and many of the use cases for family offices are not yet fully proven. Given the criticality of accurate information to the family office, it’s important that tool selection, data accuracy, and security remain top of mind when considering these technologies.
Three steps to a solid AI foundation
Even though AI is poised to revolutionize how family offices interact with data and innovate, harnessing its full potential starts with — and depends on — adopting three strategies to manage and leverage your data effectively, while still paying close attention to data privacy and security.
1. Education: Understanding what AI is and what it isn’t
The jumping off point in the family office AI journey is education — understanding what it is, and equally importantly, what it isn’t. Stakeholders must have a solid grasp of the capabilities of AI, how it works, and what it can realistically achieve in the family office context.
It’s important to acknowledge the current marketplace hype and widespread “fear of missing out,” that creates an urgency to jump in early to avoid falling behind the technology curve or getting side-stepped by others in your industry. However, the current reality is everybody is more or less in the same place, and as the technology matures, there’s plenty of time to take a thoughtful, planned approach to bringing AI into your family office.
A key part to AI education is building an organizational use case for the technology. Vendors often market AI technology with impressive demonstrations that work well in a perfect scenario, but in retrospect don’t have an obvious use case. Think about AI as you would any other tool in your IT environment and start by asking how you can best use this technology to further your mission. Does it offer truly unique capabilities, or is it just another way of presenting information that you’re already getting in other formats? There needs to be a story behind it that makes sense for you and your organization.
2. Data readiness: Preparing your data for AI
Data quality is arguably the most important factor in successful AI implementations. AI is a machine that processes large amounts of data and makes probabilistic judgments based on volume and repetition of information. But it can’t look at data and make a deterministic judgment as to the quality of the information. It simply adds your data to its larger model, looks for patterns in that data, and comes to its conclusions using the best probabilities available to it. Therefore, if the data you feed it is redundant, outdated, or trivial, AI won’t fix it, and the conclusions based on that data will be poor.
Trustworthy family office data requires attention to three factors:
- Data strategy. A comprehensive data strategy is necessary to ensure your family office can manage, process, and leverage data as a strategic asset. It’s essential in the context of AI. Your data strategy should address things such as “shadow systems” of sticky notes and spreadsheets to ensure AI applications are fed well-organized, up-to-date information that the system can understand, interpret, and use to generate high-quality insights that support decision-making and innovation. If you already have a data strategy in place, you’ll want to revisit it to ensure it’s up to the necessary standard for AI applications.
- Data quality. Poor data quality can lead to incorrect, biased, or unreliable outputs that can disrupt business operations or cause ethical and legal issues. AI requires data that’s free from errors, inconsistencies, and biases. This is critical for training your AI models and generating output you can rely on for decision-making. The better your data quality, the more valid the outcomes.
- Data culture and governance. The third component of data readiness is governance. Data governance encompasses the culture around your organizational data: the policies, procedures, standards, and roles and responsibilities that maintain data accuracy, consistency, security, and compliance. As your family office gives greater consideration to using AI, reevaluating your data governance framework may be necessary to prepare for truly transformative AI applications.
3. Data security: Knowing where your data is going
AI works by taking your data and adding it to a powerful machine learning model that’s built from petabytes of information sourced from books, articles, websites, and other content sources. AI tools then access this model to generate its conclusions. As with other cloud-based tools, the process can potentially create privacy and security concerns. Family offices must understand what AI tools are doing with their data, how it’s leveraged for productivity purposes, and whether their data is used to help train other people’s results.
Getting AI right from day one
AI is here, and family offices are considering the benefits of AI as a strategic partner to innovate, drive efficiencies, and enhance investment strategies. As you embark on your journey, do your legwork, set realistic goals, prepare your data and technology environment and for maximum effectiveness and security. With a solid foundation, AI can become a valuable resource — and possibly a game changer — for your family office.
