Choosing the Right Path: Outsourcing vs In-House for Family Office Technology Solutions
Family offices are often established informally through the family's operating business or by senior members of the family. As a result of this organic formation, the function of a family office tends to be unique to the specific needs of each family, resulting in a lack of uniformity in their structure. When it comes to technology serving family offices, a similar trend is observed, with each family office using different tools to support its management. These technologies are frequently legacy solutions that have been carried over from other businesses within the family enterprise and are often insufficient in supporting the functions of a single-family office. Family offices are facing significant pressure to improve performance beyond traditional financial measures and invest in digital technologies that can support not only the financial management, but also governance and social connectivity for the family it serves.
The purpose of single-family offices has expanded significantly beyond its original role of providing investment support to ultra-high-net-worth families. To manage the broad range of services offered, a well-conceived family office technology solution plan is imperative.
The three areas when developing technology solutions for family offices are Internal Operations, External Communication, and Family Information Management.
As family offices often start informally, the integration of technology solutions occurs in an ad-hoc manner as the needs of the family evolve. Conducting a technology needs assessment at the onset of establishing the family office can greatly reduce the risk of inefficiencies caused by having multiple digital solutions with limited capabilities. When selecting a technology solution, we recommend looking for solutions that offer simplicity of use, adaptability to your requirements, sophisticated security capabilities, and high-touch customer relationship management to help troubleshoot and design custom features.
Whether family offices should outsource or conduct these three areas internally is a topic of ongoing debate among experts in the field. Here are some of the factors that may be considered when making a decision:
Family Offices have the decision to make on whether to outsource or implement internal operations internally. Conducting internal operations allows for complete control and confidentiality over sensitive information. It also offers the flexibility to customise the operations to meet the specific needs of the family office and align with the overall goals and objectives. Yet conducting internal operations may come with resource constraints as it may require specialised skills and expertise. Additionally, if the family office doesn't have dedicated personnel with the latest technology knowledge and best practices, it may result in increased security risks. So, the decision on whether to outsource or conduct internal operations internally is a crucial one that depends on the specific needs and priorities of the family office.
When it comes to external communication, there are pros and cons to both outsourcing and conducting it internally. On the one hand, conducting it internally can give you complete control over the brand and message of your family office. You can also build stronger relationships with family stakeholders and third-party providers and even tailor your communication strategies to meet your family office's specific needs. But on the other hand, there may be resource constraints as effective external communication requires specialised skills and expertise. There's also the risk of sensitive information being communicated to unauthorised third parties and the need for constant monitoring and maintenance of communication platforms.
Family Information Management is a critical aspect of running a family office and it is common for family offices to develop technology solutions for this purpose through Customer Relationship Management (CRM) systems. When it comes to managing family information, outsourcing to a specialised provider is often a better choice than conducting it internally. There are several reasons for this:
Expertise: By outsourcing, family offices can benefit from the expertise and experience of a dedicated provider. The provider will have specialised knowledge in the latest technologies and best practices in family information management, which the family office may not have in-house.
Cost-effectiveness: Outsourcing eliminates the need for the family office to invest in the necessary infrastructure, software, and personnel to manage family information. The provider will typically have economies of scale, making their solutions more cost-effective for the family office.
Scalability: Family offices may experience fluctuations in the amount of data they need to manage, and outsourcing provides the necessary scalability to accommodate these changes.
Security: Security is of utmost importance in family information management. By outsourcing to a provider with a focus on security and data protection, family offices can be assured that their sensitive information is being managed in a secure manner.
Accessibility: Family offices need to make sure that the information they manage is easily accessible to authorised family members and third-party providers. By outsourcing, family offices can take advantage of the provider's technology platform, which offers a centralised and user-friendly solution for information management.
Outsourcing family information management to a specialised provider provides family offices with expertise, cost-effectiveness, scalability, security, and accessibility, making it a more attractive option than conducting it internally.