Increased regulatory oversight in the wake of the financial crisis and pressure from shareholders have compelled banks, brokers and other financial market participants to incorporate transparency into their operations.
But what does transparency mean for a single or multi-family office? How is it achieved? And why is it so important?
Transparency is the ability to see all investment and financial transaction details relating to a particular activity. While every family office should operate with transparency, the deliverables and actions required to implement transparency are specific to each office. To be effective, transparency should be a core philosophy of the office. Maintaining an “open book” offers family members better insight into the actions being taken with their money, provides confidence of fiduciary responsibility and, as a result, maintains trust among family members and between those charged with managing their assets.
There are two general components of transparency in the family office: how the office handles family members’ assets and how the office itself operates.
Being transparent about the family’s assets includes letting each family member know exactly what they own. But gathering details to determine a family member’s holdings in each asset class across all entities or their exposure to a specific sector can be tricky. It involves aggregating the portfolios of multiple partnerships and accounts, pulling data from several systems, integrating information into a spreadsheet and building a complex report.
Transparency also helps to track investments in the way a family member wants and ensure their investment philosophy is being followed. A “Target to Actual” report compares the target allocation to the actual allocation by aggregating data across all entities. It shows diversification by sectors, asset classes, geography and more — all in a single chart – making it easy to verify if a family member’s goals are being met.
Each family member may have a different requirement or preference regarding his or her assets. Maybe they wish to exclude a specific company or industry sector. To prove compliance with requests two things are necessary: accurate records and reports that demonstrate compliance. Sorting through data and matching against predefined rules to prepare this information is time consuming. With the right technology, sourcing information for special requests is more efficient and customized reports can be produced instantly.
In addition to transparency about family assets, being transparent about operations in the office is equally important. Internal checks in workflow can catch mistakes, identify operational gaps and expose malfeasance before it affects family members. Manually tracking every activity, every check and every report is onerous. Software audit trails and security controls will streamline this process.
As family offices have become more global with increasingly complex investments across new asset classes, the need for institutional-level controls — like transparency — have never been more important. With the right software, you can ensure transparency in your office. At the same time, you’ll benefit from a holistic view of activity to better manage, protect and build the family’s wealth for generations to come.
FundCount has been providing accounting software to single and multi-family offices for over 15 years. Contact us to learn how we can help your office.
