Beyond the Numbers Blog

New Research Study: Manual Processes Top List of Family Office Challenges

Posted on March 25th, 2019

If you think your family office is spending too much time on manual tasks for accounting and reporting, you’re probably right. But you’re not alone. According to a new study by Family Wealth Report and sponsored by FundCount, family offices spend an average of 20 percent of working hours per week on manual tasks. The number of hours can be even greater for larger offices – up to 40 percent – due to more complex investments, allocations and entities.

These findings and others are meticulously researched and reported in Family Office Focus: Efficiency in Accounting and Investment Analysis. This comprehensive study is based on a detailed survey of 44 single and multi-family offices globally and 20 in-depth interviews with senior executives.

Technological and Operational Challenges
The prevalence of manual processes was far and away the top operational challenge facing family offices. However, survey respondents also reported an over-reliance on QuickBooks/ Excel and the inability to account for, analyze and report on all investments in a single system as key weaknesses of their current systems.

Addressing these challenges is made more difficult by outdated technology and the widespread use of software that is not aligned to the specific needs of a family office. In fact, the majority of family offices surveyed rely on general-purpose software (i.e., QuickBooks, Excel) and systems geared toward the broad investment management sector rather than specialized accounting and reporting solutions like FundCount.

Complexity across legal entities and investments
Managing a firm’s partnerships, corporations, companies and trusts across multiple entities is a significant pain point especially for firms using general purpose systems. According to the study, nearly 65 percent of single family offices (SFOs) hold their clients’ assets in 26 or more legal entities — and the number of entities increases exponentially with multi-family offices (MFOs), which can have several thousand entities.

In spite of their pervasive use, general-purpose systems are ill-equipped to handle the number and range of holding structures found in family offices. And they don’t offer look-through reporting to drill down into the nested entities. That means if you’re using a general-purpose system, you probably have a hard time compiling an accurate picture of the family’s or an individual’s finances to determine net worth, particularly as the number of entities grows.

Accounting for alternative investments poses a similar challenge. Family offices included in this study had an aggregate 53% exposure to alternatives, including private equity, hedge funds and direct investments such as real estate companies. Managing these investments is more complicated when using broad accounting systems versus specialized systems that easily handle the complexities, allocations and tax reporting requirements of alternative investments. Processing a capital call, for example, can be manually intensive without a system that knows the percentage ownership for each person to efficiently make the accounting entries and send investor notifications.

Running lean
Of the family offices surveyed, 80 percent have fewer than 20 full-time employees. Minimizing manual work so that the small and typically well-compensated staff can focus on higher-value tasks makes achieving operational efficiency particularly critical to a family office.

FundCount is a purpose-built system that handles the highly sophisticated requirements of portfolio and partnership accounting and reporting through a real-time, integrated general ledger. With comprehensive support for traditional and alternative investments on a single platform, FundCount improves efficiency and arms family offices with accurate, timely information and investment insight.

Click here to request your free copy of Family Office Focus: Efficiency in Accounting and Investment Analysis.