Six tell-tale signs of inefficient and ineffective family office reporting

by Brad Simmons Partner Brad's vision is for every successful Australian family and entrepreneur to have a clear sense of purpose for their wealth. Brad helps to connect families with the expertise they need to simplify, protect and grow, enabling them to live their purpose and build and perpetuate their legacies. He works with passion, insight, independence, discretion and unwavering dedication to help families transition wealth across generations. Contact Brad

Family offices need to rethink their approach to financial administration and reporting, or risk missing the mark with their owners, writes Brad Simmons.

First, a warning. For teams running a family office, the following figures don’t make pretty reading.

Research last year from the Family Office Exchange (FOX) indicates that the average family office spends about 32 per cent of its time on financial administration and reporting. That’s almost 17 weeks a year on collecting, verifying, analysing and consolidating financial information. For some family offices, these jobs take up as much as 75 per cent of their time – that’s three out of every four days, just counting the beans.

This leaves precious little time for the functions that contribute to the true strategic objectives of a family office – things such as succession planning, educating the next generation of owners, or protecting and growing the family’s assets. The good news is that there is a better way, but first let’s examine where many family offices are going wrong.

 1. Providing meaningless information

The FOX research shows that 80 per cent of family offices provide formal reports to owners at least quarterly – but you may be wasting your time and theirs if the reports are missing the mark. Take time to engage with the owners and beneficiaries of the family office to discover what outputs they truly want from financial information. Broadly speaking, owners want to know: What do I have? How has it changed? What should I be doing about it?

Delivering meaningful information for each individual client is the family office executive’s ultimate challenge. Nailing the perfect report is an iterative process that requires an ongoing feedback loop with clients. Be persistent, but patient too.

2. Disconnect between objectives and reporting

One of the main advantages that family office investors have over their institutional counterparts – who live and die by monthly and quarterly league tables – is their ability to take a long-term perspective. To this end, appropriately focused reporting is crucial. As FOX puts it: “The key to successful financial reporting and communication rests with the office’s ability to tie the numbers back to the client’s personal and collective family goals.” In other words, effective family offices deliver their owners more than just a set of numbers on a page.

Financial reports should give family members a consolidated picture of their wealth holdings and enable them to make fully informed decisions about their future. The key? Meaningful and timely information that is linked to a family’s desired outcomes.

3. Looking in the rear-view mirror

Too many family offices seem to be looking in the rear-view mirror, rather than at the road ahead. In the most effective family board meetings, the backwards-looking data – portfolio performance, financial reports etcetera – have been distributed, read and understood well before the meeting.

Ineffective family office reporting, on the other hand, will have gaps in data and unreconciled balances which can plunge a meeting into disarray, leading to excessive time spent grappling, debating and interpreting.

A new world exists around real-time market data, consolidated reporting of bank balances, timely performance reporting and three-dimensional views across asset classes and entities. However, this clearer vision can only become a reality if a family office has all of its back-office systems synchronised and adopts best-practice reporting.

4. Using error-prone spreadsheets

The FOX research suggests 70 per cent of offices still rely on Excel spreadsheets to integrate their financial data. With hundreds of links, cell references and formulas in your average spreadsheet, the chance of errors is high. We recently began working with one family office, which was managing its entire portfolio on a spreadsheet, complete with holdings in companies that no longer existed, omitted assets, outdated share prices, incorrect tax cost bases … you name it. We have since helped them to clean up their records; their holdings are now reconciled on a daily basis, with market feeds through our portfolio administration platform ensuring that share prices and corporate actions are all kept up to date. This has enabled the family to focus the conversation on decision making and benchmarking progress against objectives.

5. Double handling data

You know the scenario – invoices, share transactions and property income reports are entered multiple times into different systems, all because your software packages don’t talk to each other.

The key for family offices is to automate data for multiple purposes, such as board reporting, performance analysis, Business Activity Statements, statutory accounts and income tax returns. With the right systems and processes, you can then leverage that data for multiple purposes. Failure to do so embeds inefficiencies and increases the risk of errors.

A range of clever technology solutions can help automate your family office. For example, free services such as BankLink and Xero’s bank feeds enable line-by-line transactions and bank account balances to be synchronised with various reporting platforms. Similarly, services such as Shoeboxed and Receipt Bank let you convert hard-copy receipts and invoices into digital data so they can be uploaded directly into accounting systems. Then there are dedicated portfolio administration systems, such as Praemium, that enable automation of important trading and accounting activities, while custodial services allow family offices to outsource the arduous task of maintaining share portfolio holdings.

6. Manual consolidation across entities

Family offices must provide their owners with an accurate and timely consolidated view of their assets showing a three dimensional cross-section of holdings by asset classes across holding entities. However, manually aggregating entities into consolidated reports is laborious and prone to mistakes. Fortunately, excellent technology solutions can automate this process, enabling error-free consolidated reporting in an instant.

 There is an easier way…

Don’t despair – your family office is not alone in struggling with inefficient and ineffective reporting. FOX’s research reveals that about 36 per cent of family offices outsource their technology and reporting, and just 11 per cent outsource their financial administration. By default, that means that the vast majority of family offices are hampered by home-grown legacy systems and spreadsheets which are likely to lack the rigour and scaleability of a specialist platform.

Over the past decade, Mutual Trust has built a flexible platform which has been custom made with the unique requirements of family offices in mind. It combines a suite of contemporary technology packages and in-house proprietary systems to drive efficiencies, improve controls and deliver reports that enable families to make better decisions.

Mutual Trust works with many family offices around Australia who leverage our custody and investment administration platform and bookkeeping, tax, accounting and superannuation technology suite.

Not only do they report cost savings, but they also remark on how simple outsourcing makes their lives.

In short, it takes away the pain of administration and allows families to focus on the more strategic aspects of their affairs.

Mutual Trust Pty Ltd ACN 004 285 330 (AFSL 234590). Liability limited by a scheme approved under Professional Standards Legislation. For participating members (other than for the acts or omissions of Australian Financial Services Licensees). This information is general in nature and subject to change. It does not constitute tax, legal or financialadvice. We recommend you seek advice specific to your circumstances before taking any action. Copyright © 2014 Mutual Trust Pty Ltd.
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