Tech Traps Wealth Managers Must Avoid 2023

2023

4th ANNUAL EDITION

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID Expert guidance on strategy, selecting solutions and implementation

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FOREWORD

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n this latest research report about the technology traps that exist out there for wealth managers, we explore the continued challenges the industry faces at a time when the air is full of noise about artificial intelligence, machine learning, digital assets, and more.

This study will hopefully cut through the foliage to show managers a clear path ahead.

The Tech Traps reports have gained a popular following because of how they’ve gathered incisive insights from senior industry figures, giving experience from “the field”, so to speak, that goes beyond theories.

We want readers to be able to put these ideas to work.

For example, SS&C in this report explores the conversations it has with family offices and how they want to be more efficient but also how they are set in their ways and nervous of change. This has been something we have noticed before. Family offices are often set up by business founders who want to get away from the chores of operations and systems, and aren’t necessarily of a frame of mind to explore these topics.

As the SS&C comments make clear, there’s a shortage of people with operational talent and insight, and locating the right people is hard.

In another angle on the issues, Dan Gregerson, executive chairman at Summitas, writes about how the operations, IT and other professionals co-ordinate the workflows to meet everyone’s needs. As he notes, the sheer pace of change can interfere with progress when complexity gets out of hand. And this raises the point that complexity is something humans are often unaware of. More positively, systems are becoming less predictable as they become more capable. That creates new challenges.

We also look – in a subject that I have followed in news reports and commentaries – at the use or misuse of private messenger platforms such as WhatsApp. Financial regulators have punished banks and other organisations where they think the users have overstepped the mark (an ironic situation, given UK stories of politicians using WhatsApp). These tools are very convenient, and there’s a challenge for balancing ease of use against a need to stay on the right side of compliance.

With a volatile economic backdrop, wealth managers must make better use of tech so their businesses capture growth where it arises, and avoid mistakes. An important commentary from Additiv, for example, says that there are over $30 trillion in undermanaged assets globally, much of which is not accessible via traditional financial channels. The potential is clearly huge.

Other constant “traps” exist around unrealistic expectations about what tech can, and cannot do; hasty implementation and lack of planning; a failure to see the “Big Picture” in terms of what technology is for, and an understanding that without buy-in from staff, managers and third parties, the best technology will be wasted.

As ever, the value of these reports comes from the expertise and commitment of those who take time and trouble to contribute ideas. Our thanks to all involved this year.

We look forward, as always, to your feedback.

TOM BURROUGHES Group Editor WealthBriefing/Family Wealth Report tom.burroughes@wealthbriefing.com

PUBLICATIONS

WealthBriefing is the leading subscription-based business intelligence service for the wealth management community, with the latest news, analysis and in-depth features from around the globe. WealthBriefing subscribers are part of an international community for whom staying abreast of the latest industry developments is a crucial part of their professional practice.

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CONTENTS

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THE WEALTH DATA PUZZLE EY

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FUTURE-PROOFING A WEALTH BUSINESS COULD BE EASIER THAN YOU THINK additiv

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INCREASE CLIENT STICKINESS BY FOCUSING ON WHAT YOU SHOULD DO, NOT WHAT YOU CAN DO BILL

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ALTERNATIVE INVESTMENTS Canoe Intelligence

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BUILDING AN EFFECTIVE FAMILY OFFICE TECH STACK. A GUIDE FOR BUYING TECHNOLOGY PRODUCTS Masttro

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REINVENTING THE PORTFOLIO MANAGEMENT EXPERIENCE SS&C Advent

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ROBOTS IN THE FAMILY OFFICE? NOT AS SCI-FI AS IT SOUNDS SS&C’s Family Office Services

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NEW MODEL CLIENT PLATFORMS Summitas

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THE WHATSAPP SCANDAL, WEALTH MANAGERS MUST AVOID 2023 Wecan Group

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

The Wealth Data Puzzle

Wojtek Buczynski, CFA, FRM, AI Specialist and Phil Tattersall, Partner at EY, describe 2022 as another year of technological transformation on a mass scale for the UK wealth management industry. This came despite the challenging economic, market and geopolitical backdrop. We expect 2023 to follow a similar transformative trajectory.

Unsurprisingly, in a field as dynamic and disruptive as financial technology we see a lot of innovative ideas (for example tokenization), emerging trends (like AI), and the well-established megatrends (such as the cloud, ESG or alternative data). Betting on a new trend is one thing, but implementing it is another, and it rarely comes without challenge.

The adoption of some emerging technologies is discretionary and will depend on firm budgets and appetite. But other areas, like the cloud and ESG, are increasingly essential. ESG is particularly notable as we strive to reach net zero.

Virtually all the challenges and opportunities the wealth management industry - and arguably the broader investments space - must contend with are underpinned by data. Data is the ultimate, broadest megatrend, and should be regarded as an asset. Having the right data strategy is likely to be one of the key determinants of future success for wealth firms.

EY’s extensive research and client work have given us valuable insight into the industry.

This article looks at four key themes that will benefit from a robust and progressive data strategy.

GOING DIGITAL The wealth industry is currently focused on the mass affluent customer segment as its next big target demographic. This segment’s wealth will in part be powered by what is dubbed as “The Great Wealth Transfer”, whereby trillions will be passed between generations, most notably from baby boomers to millennials (although many individuals in this bracket are first-generation wealth-builders).

While some of the older millennials still remember life pre-internet, they are the first generation to be considered “digital natives” and access and consume services – including financial - differently to their parents.

The mass affluent segment may have been previously deemed ineligible for wealth management services due to the size of their assets, which are relatively limited by traditional Wealth Management standards (USD 100,000 – USD 1,000,000 excluding property).

While some of the older millennials still remember life preinternet, they are the first generation to be considered “digital natives” and access and consume services – including financial - differently to their parents. While the old paradigm of wealth and private banking is exceptional personal

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

service, younger clients expect bespoke, personalized services online. They want exceptional mobile experience with personalized analytics, data-driven insights and recommendations. This will strongly apply to those in the mass affluent category, not just because of their preferences, but because higher-touch wealth management services might be too costly for them.

HYBRID ADVICE We see wealth management services as a broadening spectrum, with traditional high-touch service still in place for the wealthiest, more traditional clients at one end, and a primarily digital experience of younger people at the other.

This transformation is driven by democratisation of advice across the wealth spectrum by firms aiming to serve clients in different segments while managing the costs.

At the same time, our industry research has revealed that all the wealth client categories reported their customer experience has become less personalized in the past three years (29% to 67% clients depending on the segment). Paradoxically, in the same survey both millennial and Gen X customers declared greater willingness to share their data with a wealth manager than with their doctor (80% vs 67% for millennials and 74% vs 68% for Gen X). Underutilisation of data and data-driven insights in the digital channels is a plausible explanation for this depersonalization of client experience.

We see the hybrid model – encompassing both personal and data-driven digital experience – as the best way forward.

We see the hybrid model – encompassing both personal and data-driven digital experience – as the best way forward.

There is no universal “one size fits all” solution and each wealth firm will need to embark on its own, unique transformation journey tailored to their strategic ambitions. The one unacceptable course of action is to do nothing.

ESG ESG is one of the key investment considerations for wealth clients, especially Millennial and Gen Z investors. Data implications are huge, with growing regulatory pressures adding to those. Wealth managers need to be able to evidence – with data – that their investments that are labelled and marketed as ESG are in fact so.

ESG comes with a unique set of challenges around data.

It is often unstructured, which makes it difficult to quantify, aggregate and compare across entities. An entity ranked highly on one aspect (for example environmental) may rank low on another (for example governance), which makes it

challenging (if not impossible) to capture an investment with a single ‘ESG score’ (an issue that gets exponentially more complex when aggregating multiple investments). Greenwashing is also an increasing challenge as investment firms’ ESG claims are being increasingly scrutinised and challenged.

Consequently, investment managers conduct complex analytics to base their decisions on and to be able to explain them to their clients and regulators.

AI is being seen as a potentially very useful (and scalable) solution in translating unstructured data (particularly free-form text and speech) into quantifiable data.

Separately, AI is being seen as a potentially very useful (and scalable) solution in translating unstructured data (particularly free-form text and speech) into quantifiable data.

Large asset managers either go for third-party ESG data and analytics or employ a hybrid model whereby the combine their in-house research with third-party data – in the Wealth space we see the former approach as more likely due to lack of economies of scale.

Regardless of the approach, data will be the key to addressing the ESG challenge.

CULTURE AND TALENT One of the most unexpected (yet consistent) findings of EY’s latest wealth research was the importance of company culture to the success of data strategies and broader digital transformations.

Our central discovery – which was further corroborated by joint research1 between EY and Oxford University’s Saïd Business School – was that a purely techno- and meritocratic approach to transformation results in a 70-90% failure rate2. Accounting for human factors within a transformation programme, for example the feeling of job security or the sense of belonging, increases the chances of a success by a factor of 2.6.

Another widely recognised and reported cultural challenge was the “silo-ization” and disconnect between various teams.

Another widely recognised and reported cultural challenge was the “silo-ization” and disconnect between various teams.

This is an issue whereby multiple teams each hold their own, local data and a single “golden source” does not exist.

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Whether data is centralised (e.g. in a data lake) or merged across multiple repositories (e.g. via data mesh or data fabric) is a technological and operational decision – in any case data needs to be “de-siloed” and shared more widely.

Data education for employees is also important. EY research found that internal training programmes (particularly around data governance) were met with active interest by the staff.

However, cultural changes take time and patience and wealth firms need to be mindful of that.

Our research has shown that improved culture enhances trust within the organization, trust from the clients, and trust from business partners.

Our research has shown that improved culture enhances trust within the organization, trust from the clients, and trust from business partners. Given the fundamental importance of trust to Wealth industry a positive cultural shift may benefit not just the organization’s morale or efficiency, but also, tangibly, its bottom line.

CONCLUDING THOUGHTS In conclusion, while the themes above are all data-focused, their range is very diverse, spanning culture, analytics, client experience and environmentalism. It goes to show that data is much more than just a technological consideration. Data is all-encompassing and fundamental to wealth firms’ success.

About EY

EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.

Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.

Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. EY member firms do not practice law where prohibited by local laws.

This news release has been issued by Ernst & Young LLP. For more information about our organization, please visit www.ey.com and email: wojtek.buczynski@uk.ey.com

Transformation Leadership: Humans@Centre | Saïd Business School (ox.ac.uk) 2 Failure defined as transformations not delivering on their objectives, not necessarily a complete failure.

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Future-proofing a wealth business could be easier than you think

Christine Schmid, Head of Strategy at additiv, a Swiss-based financial services orchestrator, offers a view on how to leverage technology to provide a wealth management service aligned with digital savvy consumer expectations.

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henever you pay for groceries with a single click, use “buy now pay later” or get travel insurance with a holiday, you’re taking part in a transformation of the financial services industry. This is “embedded finance” - financial services embedded in other platforms, often big consumer brands.

of consumers would happily save or invest via a non-financial provider2. While this creates an opportunity for consumer brands, most don’t have the right expertise (or regulatory setup) to capitalise on it. They’ll need to partner with regulated wealth, asset managers and technology solutions to embed these new value propositions.

It isn’t a new idea but, thanks to technology and regulatory developments like open banking, it’s becoming seamless and more widespread. It started with transactions like payments, consumer lending and insurance and is now, inevitably, expanding into longer-term, more relationship-driven financial services like investing and wealth management.

Embedding wealth management into other channels is a big opportunity, but it isn’t the only one. Embedded finance also gives you the freedom to expand in new directions.

financial services face a fundamental restructuring, but banks who successfully manage the transition will be bigger and more profitable1.

Wealth management is a natural gateway to many other financial and associated services, from pensions and mortgage to healthcare insurance and goal savings. Complementing your existing offer means an expanding revenue source lays at your fingertips.

As a wealth manager or private bank, the prospect of Amazon or Google providing investment services might be daunting.

Where do you fit? Are you a competitor or a service provider? However, embedded finance isn’t just about consumer brands expanding. It’s about the integration of financial services into the broader consumer ecosystem, using technology to make financial products and services available to customers now when they are most convenient or attractive. According to McKinsey, financial services face a fundamental restructuring, but banks who successfully manage the transition will be bigger and more profitable1. There’s no reason why wealth managers and private banks can’t profit too.

EMBEDDED FINANCE IS AN OPPORTUNITY NOT A THREAT We estimate that there are over $30 trillion in undermanaged assets globally, much of which is not accessible via traditional financial channels. Additionally, we found that two-thirds

Of course, embedded finance also enables partnerships between financial providers. For example, the digital bank Starling has embedded digital wealth manager Nutmeg, allowing customers to access investments through the same app as their bank account.

CAPITALIZING ON COMPONENTS Additionally, the same composable building blocks that are used to embed finance can also be used to enhance the user experiences and client proposition of an existing wealth business. For example, embedding CRM systems, communication software or portfolio tools and innovating your investment services through a digital platform can improve customer experience and give advisors the capacity to provide personal advisory services to more clients.

Whether it’s innovating via new distribution or complementing and renovating your existing offer - implementing these changes will involve technology. And that means that there are a couple of technology “traps” - that you should avoid.

TECH TRAP #1: DO NOTHING Technology projects have had a reputation for big budgets, delays and overspend. Given private banks and wealth

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

managers often have strong brands and long-term customer relationships, it could be tempting to stick with the status quo. However, with the right approach, today’s embedded finance solutions require little or no capex and can be upgraded and extended with ease.

However strong your brand, digital renovation is now a must. Your current, and even more so, the next generation of customers, will require smooth 24/7 access on top of the personalized service they expect from a wealth manager.

TECH TRAP #2: DIY The opportunities for wealth managers are incredibly varied. To get exactly the solution you want, you might feel that it’s better to do it yourself, considering financial services technology is complex and IT systems are often highly specific. However, it’s this complexity that makes development slow and costly.

Building from scratch involves focusing on building capacities outside your core strengths, the mindset challenges here are vast; Goldman Sachs’s Marcus endeavour shows that innovation and entering a new segment needs a mindset change and time. What’s more, whatever your plan, it’s likely that the individual components already exist, available through technology partners.

TECH TRAP #3: BUY IT So, perhaps buying a ready-made modern solution is a better idea? This might seem like a simple fix, but this is a changing landscape where flexibility is critical. Buying a ready-made solution will focus on product proposition and not your client’s evolving needs. Furthermore, buying or investing in a fintech solution brings even more challenges, including cultural fit and speed of integration.

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As with the DIY approach, even financial giants can get this wrong; JP Morgan’s acquisition of student loan start-up Frank, where the due diligence proved inadequate, is just one example.

However strong your brand, digital renovation is now a must.

Larger banks have realised that to transform your business you must also embrace a new mindset - plugging in an existing solution - is therefore at risk of failure. Instead, they set up incubators, a long-term strategy where deep pockets are required.

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

THE RIGHT APPROACH IS ALSO THE EASY ONE Our three tech traps have something in common that isn’t about technology. They also reflect a mindset that perhaps hasn’t fully appreciated the breadth of opportunities out there.

The future will be about maximising the value of your core expertise in a consumer facing ecosystem. You don’t need to own or build technology to do this, just like you no longer need to physically own CDs or vinyl to have a great music collection.

What you do need is orchestration. Your business vision is like a piece of music, and you just need someone to pick the right musicians and bring them all together in a harmonious way.

This is an orchestration layer that provides everything as a service. Companies like additiv can provide the full spectrum of building blocks and implement them in a way that suits your customers and your strategy; This includes enhancing your value proposition with digital innovation as highlighted by the case studies. They also understand the regulatory and security complexities of financial services. For most wealth managers, this is likely to be the fastest route to market, with limited IT costs and a lot of flexibility.

Big brands have their sights on offering investment services, but this needn’t be a threat. Firstly, they’ll need your expertise and regulatory functions to succeed. More importantly, the same technologies that allow consumer brands to embed wealth in their digital channel also allow you to enhance and grow your business. Just stay away from our tech traps and you could be only months away from business transformation.

McKinsey Quarterly, December 2022: “The future of banks: A $20 trillion breakup opportunity” 2 additiv: “Understanding the Embedded Finance Opportunity - Consumer study 2022”

CASE STUDY: GLOBALEYE Globaleye, a UAE-based international wealth advisory firm, wanted to rapidly build a premium digital wealth platform, addressing a regional need for efficient but highly personal service.

Solution: Globaleye 3.0, a new platform based on additiv’s Hybrid Wealth Management solution and underpinned by a range of market-leading financial partners.

Key customer benefits: n Highly intuitive end-to-end service. n Fast digital onboarding and automated account

opening. n Interactive financial planning tools and goal setting. n Bespoke investment portfolios. n Market data from Morningstar. n Seamless access to global markets, with brokerage

and custody services from Saxo Bank.

CASE STUDY: ATRAM ATRAM the largest independent asset and wealth manager in the Philippines, was looking for a cost-efficient way to modernise its wealth management offering to meet demand for smart and intuitive investment services.

Solution: a personalized digital wealth platform delivered through a Saas model using additiv’s orchestration engine.

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Key customer benefits: n Personalized digital service for HNW, corporate and

institutional clients.

About additiv

additiv partners with leading brands across the world to help them capitalise on the possibilities of embedded wealth management. additiv’s orchestrated finance platform supports the entire digital wealth management journey. additiv is headquartered in Switzerland, with regional offices in Singapore, UAE, and Germany.

For more information, visit: www.additiv.com

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n Innovative hybrid advisory model for HNW, enabling

seamless client/advisor collaboration. n Seamless transactions on ATRAM’s suite of investment

products. n Instant 360-degree view of investments, with goal

setting and scenario/risk analysis. n Sandbox facility allowing partners to develop and

integrate new products.

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Increase Client Stickiness

By Focusing On What You Should Do, Not What You Can Do

The wealth management landscape continues to change as newer generations inherit wealth or create their own. The demand for digitisation is also growing stronger for clients who expect convenience, speed, and transparency.

What can family offices, multi-family offices, and wealth management firms do to anticipate and exceed client expectations? Tate Henshaw, Co-Founder of Arc Business Management, speaks with Brandon Roth, Senior Product Marketing Manager of BILL about looking beyond what you can do to what you should do and how Arc has leveraged bill pay services to uplevel the client experience.

Brandon: Tate, tell us about your firm.

Tate: We’re a business management firm with clients who include actors, rappers, and college and professional athletes. They are mostly younger and trust us to help with everything from estate planning and bookkeeping to payroll and tour accounting. In a single day we may be shipping a client’s car across the nation, setting up utilities, and paying bills. We aim to provide the 3 Cs: comfort, control and confidence.

Brandon: What is a common wealth management technology trap to avoid?

Tate: Wealth management professions, including family offices and multi-family offices, are experiencing upheaval as we navigate the Great Wealth Transfer. Client expectations are evolving. They want more services for the same price. As a result, we often focus on what can be accomplished.

With new technology and access to information, there is little that falls outside of what we can do.

With new technology and access to information, there is little that falls outside of what we can do. However, we are all limited by a combination of time, resources, people and skills. It’s imperative that we understand what we should do to maximize achieving our goals. Otherwise, we can fall behind competition or let our core competency suffer.

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Brandon: Can you give me an idea of what this looks like?

Tate: What we can do limits us. It may do so inadvertently, but it does. When you think of what you should do instead of what you can do, you have to prioritise. Then you can source technologies or partnerships to make it a reality.

“I used to have to pay bills. It was a headache. Now, I don’t have that pain.”

Bill pay is one example. No one likes paying bills, but it’s important. Bill pay is a foundational service for us. We don’t lead with it, but it increases our client stickiness. Our clients are traveling and focused on their careers and lives. When we pay bills for them, what they understand is “I used to have to pay bills. It was a headache. Now, I don’t have that pain.” Our bill pay service builds deeper relationships with our clients, which in turn makes them less likely to move their business.

Brandon: You mentioned automated AP from BILL and I want to get back to that. But first, can you share how bill pay looks without automation?

Tate: When we first offered bill pay eight years ago, we had a tedious process. I remember large stacks of check stock and tracking bills on spreadsheets. We had AP pain if a spreadsheet wasn’t updated or we worked off an old version. When you multiply that across the multiple entities we were managing, the process wasn’t efficient or transparent. It also meant we had a higher likelihood of double paying or data entry errors because it was so manual.

Brandon: How does BILL solve these headaches?

BILL provides a level of clarity into the AP process. It can pull bills into one, automated, cloud-based platform. Invoices are uploaded or emailed into the BILL system. It routes the bills

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

through the proper approval process based on factors like vendor, client, and amount. We used to have to remember the workflows for clients. Now we can implement these policies into our process via software, which is infinitely more scalable. Every step is tracked and audit-ready, so you can easily see if a bill has been paid or where it is in the review process.

The workflow is agile, meaning if your client wants every bill over $5,000 reviewed by their manager, they will automatically be included and notified when a bill is ready for them. The steps are digitised, from reviewing to approving to paying to reconciling with accounting systems. Plus, it syncs with accounting systems.

For my firm, it makes us much more efficient and increases our account managers’ capacity by more than 25%.

Brandon: What do your clients experience with BILL? Tate: It’s not unusual now for firms to mail piles of invoices and checks to their clients for signatures. Then they stuff the returned checks into envelopes, drop them in the mail, and wait for them to clear. It’s a time-intensive process for everyone.

With BILL we’re able to abolish this outdated process and make the bill pay process mobile.

With BILL we’re able to abolish this outdated process and make the bill pay process mobile. Instead of wading through stacks of paper, clients can open an app and review and approve bills in seconds. Plus, we’re able to tailor the level of participation to meet clients’ preferences.

For example, our music clients are often too busy to oversee the AP process. They have bills come directly to BILL. Using the BILL app or working online, they can see statuses, approvals, payments, invoices, and more - no matter where they are.

We help them by managing cash flow and payment timelines.

That is all taken care of for them. But if someone wants to be even more hands on, we can create workflows that help them accomplish this.

Brandon: What do you advise firms to do that might not have the resources to handle bill pay?

Tate: Why not consider alternative options such as outsourcing your client’s AP to a trusted partner such as Arc? We have extensive experience in running business management services including bill pay, which allows your firm to sell a full set of services including AP and differentiate your firm from competitors.

Brandon: Thank you for sharing your experience with us.

Any final words of advice?

Tate: Don’t get bogged down thinking about all the things you can do. Instead, focus on what you should be doing, and you’ll build even stronger relationships with your clients.

focus on what you should be doing, and you’ll build even stronger relationships with your clients.

Brandon: What’s the best way for someone to contact you?

Tate: You can reach me and my team at info@arcmgmt.co.

The information provided in this document does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided “as-is”; no representations are made that the content is error free.

About BILL

BILL (NYSE: BILL) is a leader in financial automation software for small and midsize businesses (SMBs). We are dedicated to automating the future of finance so businesses can thrive.

Hundreds of thousands of businesses trust BILL solutions to manage financial workflows, including payables, receivables, and spend and expense management.

To learn more about BILL and automating AP for your clients, visit: www.bill.com

Brandon: I know the safety and security of your clients’ personal and financial information are top priority. How does BILL help with this?

Tate: With BILL, checks do not have client banking information on them. The payments are drawn from the BILL bank account.

Masking that information gives us peace of mind, along with multi-factor authentication and the fact that vendors can input their own information. You can also limit who has the authority to approve payments. UHNW and HNW individuals are often a target for fraud, so these extra precautions are valuable.

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Alternative Investments

Michelle Wilson is Head of Product at Canoe Intelligence, a financial technology company powering alternative investment intelligence for institutional investors, capital allocators, wealth managers, and asset servicing firms. In this article, Wilson explains the operational challenges investors face in this industry and highlights the benefits of choosing the right technology solution to manage the operational burden.

INVESTING IN ALTS: HOW PURPOSE-BUILT TECHNOLOGY ALLEVIATES THE OPERATIONAL BURDEN As investors seek out higher yields in the current low interest rate market, they are allocating more capital to private market asset classes. Investments in alternative asset classes have grown from $4.6 trillion to $13.3 trillion in the past decade. By 2026, these investments are expected to nearly double.

While the benefits of alternative investing are clear, wealth managers are often surprised by the operational burden of managing these assets. Most alternative investment managers exclusively offer reports and notices in PDF or hard-copy formats, meaning that, to consume the data in their downstream systems, investors must either manually transcribe these data points or figure out ways to extract and digitize the relevant information. Furthermore, the content and structure of these statements vary widely across the different asset managers, as there is no unified reporting standard for the private markets. Documents are also made available to investors via disparate channels like online investor portals, or via email as attachments.

NAVIGATING UNFAMILIAR TERRITORY Unlike traditional investments, the esoteric nature of alternatives makes the associated reporting very complex. According to Michelle Wilson, Head of Product at Canoe Intelligence: “As a wealth manager increases their allocation to alternative asset classes, they quickly become inundated with a high volume of likely unfamiliar documentation. To cope, firms may end up allocating more time and resources towards supporting the post-investment process, rather than to higher-value functions like investment research or client engagement.”

To deal with these challenges, investors who lack a sufficient understanding of the nuances of these asset classes may encounter some common pitfalls. Wilson notes: “A lot of firms resort to

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building resource-intensive manual teams to manage this process, which is not only expensive but also increases the risk of client service-level agreements (SLAs) being missed and other human error. It becomes extremely difficult to scale.”

EXPLORING SOLUTIONS: TRIAL AND ERROR Alternatively, some firms opt to outsource these workflows to administrators or managed service providers to free their team’s time for more value-adding activities. However, rather than eliminate the work, this approach simply transforms it into oversight of the third party, introducing a level of opacity that weakens control and could cause unintended risk.

It is no surprise then, that some investors turn to technology to solve the challenge of digitizing the data to alleviate the burden on their teams. However, even with this approach, a common mistake is to select generic solutions which may seem initially attractive based on a lower price point.

“Whereas generic solutions are typically optical character recognition (OCR) based, technology like Canoe’s is purpose-built and incorporates a deep knowledge of the alternatives industry. Generic extraction solutions are better suited to highlystructured documents.”

As Wilson notes: “Whereas generic solutions are typically optical character recognition (OCR) based, technology like Canoe’s is purpose-built and incorporates a deep knowledge of the alternatives industry. Generic extraction solutions are better suited to highly-structured documents. In the alternatives space, documents are largely unstructured and the vocabulary is specialized, so the generic technologies do not perform well.”

For example, “Our field library is very tailored to the kinds of terms you would see used in the alts space, down to the different ways firms refer to the same data point across the industry.

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Canoe has all of that nuance built into the platform.” As for any remaining cost savings, Wilson adds, “These systems are not tailored to alternatives, so oftentimes you end up spending extra resources on checking and fixing errors. That time could be better spent doing high-value work, letting the purpose-built solution handle the nuances of alts on your behalf.”

In a similar vein, wealth management solution providers often don’t cover the holistic end-to-end post-investment workflow.

According to Wilson, firms evaluating solutions may become hyper-focused on solving one specific issue, like data extraction, without thinking about the whole workflow. To take full advantage of their investment into alternatives, it is essential for wealth managers to implement an end-to-end solution.

“For example, they might not think about how they are even getting the documents into the extraction system in the first place. The truth is, many people still end up manually logging into these portals, which comes with the operational overhead of managing portal credentials, dealing with expired passwords, and other tasks, delaying the subsequent extraction and aggregation processes. When you focus too much on one function or try to buy different tools for each piece of the workflow, you may end up with a jumble of tech solutions without knowing if they can work together.”

In addition, generic solutions will not necessarily integrate well with other solutions in the wealth manager’s tech stack. Wilson adds: “You likely have in-house accounting or treasury systems to be considered. The data extracted from these documents needs to be able to seamlessly flow to these downstream systems. When you pair a system like Canoe with a downstream integration partner like Addepar, you end up with a more seamless end-to-end wealth management solution.”

FINDING THE SWEET SPOT: WELL-INTEGRATED, PURPOSE-BUILT SOLUTIONS In leading her team at Canoe, Wilson places a heavy focus on building integrations and ensuring everything can talk to everything else, both internally and externally. She notes: “In my past life, I have seen vendors offer good systems for a number of different purposes, and even though they were all part of the same suite of products, they didn’t integrate well together. The clients, even if they had the full suite, had to deal with a complex download-upload situation between each system.”

Ideally, in that case, they would just push a button and the data would move between each automatically. Wilson offers the idea of a holistic approach to solution-building, much like the one she drives in her role at Canoe: “My goal is to ensure that everything Canoe does plays well with other downstream systems. I am making sure that we’re building everything in a flexible, thoughtfully-structured, system-agnostic way. We have public-facing APIs that anyone can call to push the data into any downstream system, limiting the need for clients to build custom integrations for each piece of their tech stack.”

What does this ultimately look like? It looks like one seamless solution for document collection, ingestion, categorisation, extraction, validation, and data delivery can manage the entire workflow – automatically performed on the client’s behalf.

REALISING VALUE: AN END-TO-END SOLUTION FOR ALTERNATIVES Wilson adds: “We are doing everything end-to-end. Through Canoe Connect, we automatically collect documents and deliver them to Canoe Intelligence for immediate use. We serve as a unified data repository, so our clients’ data is not fragmented.

They have full visibility into their documents, their data, and the performance of their investments within a centrally accessible client tenant.”

“We serve as a unified data repository, so our clients’ data is not fragmented.”

Looking to the near future, Wilson wants to take advantage of the data in Canoe’s fund master, counting more than 20,000 funds to date, to generate deeper insights for investors.

“When we see a document for a new client, we have likely seen other documents issued from the same fund to existing clients before. Canoe is able to enrich the technology itself with intelligence from the vast volumes of specialized documents we have processed in the past. We can leverage that shared intelligence to drive additional insights that investors can use to inform investment decisions, evaluate fund performance, or shape operational planning.”

About Canoe Intelligence

Canoe Intelligence redefines alternative investment data processes for leading institutional investors, capital allocators, asset servicing firms, and wealth managers.

By combining industry expertise with the most sophisticated data capture technologies, Canoe’s technology automates the highly-frustrating, time-consuming, and costly manual workflows related to alternative investment document and data management, extraction, and delivery.

More than 200 companies leverage Canoe to refocus capital and human resources on business performance and growth, increase efficiency, and gain deeper access to data.

For more information, contact: sasha@canoeintelligence.com bdaitch@canoeintelligence.com

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

BUILDING AN EFFECTIVE FAMILY OFFICE TECH STACK. A GUIDE FOR BUYING TECHNOLOGY PRODUCTS

Technology adoption varies greatly among family offices and institutions that work with them.

Many organizations still rely on spreadsheets for pretty much everything they do; others have wholeheartedly embraced innovative tools to accomplish all manner of mission-critical tasks, including data reporting, investment analysis, and integrated planning.

However, based on numerous conversations with organizations across the spectrum, many decision makers in the wealth management ecosystem face a common challenge when considering new technology: they often don’t have a clear understanding of the problems they’re solving for and how to go about the evaluation process.

Unfortunately, this lack of clarity can be quite costly. In a Wall Street Journal report titled, “The Many Ways Companies Waste Money With Technology Spending”, James Anderson, a research vice president at Gartner, explained why the inefficient spending has only amplified in recent years: “With Covid, everyone’s seeing digital acceleration, but very few organizations are tracking what they’re getting in terms of business outcomes. They’re not using business metrics to influence investment. They’re doing what people tell them to do”.

This article is designed to help you avoid the missteps that come from not understanding your organization’s problems and needs or using data points to inform your choices. Members of the Masttro team have sat on both sides of the table, having worked for family offices and related institutions before joining the leading provider of wealth data technology solutions.

For this reason, we believe we are uniquely positioned to outline the smartest approach to building a tech stack.

1. STATUS ASSESSMENT Use the following questions to gain a genuine understanding of your current situation. You’re painting a broad sketch that you can subsequently fill in with more detail, with the intention of identifying what information you need to gather as you move forward: n What are your primary problems/needs/issues? n What are the secondary concerns? n What specific pain points is your organization experiencing

around these problems/issues/needs? n What technology are you currently using to handle the task(s)? n What type of service does the vendor provide? n What problem does the vendor not currently solve? n What do you want/need the new technology to do? n Who will the users be? n Who will use the new technology to perform their task? n Who will receive the work product? n What is your budget?

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n What is your go-to-market strategy across users and

stakeholders?

2. SCOPE DETERMINATION The purpose here is to clearly identify which elements of your business and operations you want the new technology to solve.

Start with the pain points you identified in the first step, then use that list to guide conversations with various vendors.

As you speak with different representatives, you’ll gain information about what is possible (perhaps there are products that address them all) and what is not (perhaps you will find that the best solution requires multiple products). In these conversations and others, you will want to include people in multiple roles throughout your organization, as they will each bring distinct knowledge of their area of interest.

It is important to include, along with the decision makers, additional thought leaders such as accountants, investment

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

advisors, the operations team, an IT person, and others to take part. You would use these elements to ascertain the scope: n Asset classes: Which asset classes do you want incorporated

now and which might you want in the future? Seek input from your investment manager and/or advisors. n Documents and contracts: In many family offices, you need to access documents or contracts from a dozen years ago, but the document is MIA and the person involved is long gone. Some tools can archive documents so that they are easily retrieved, others, less so. n Contacts: People move or die, trustees change. If you find yourself always searching for emails and phone numbers, you may want an operating system that organizes them. n Access: Which brings us to which of your third-party providers would ideally have access to the platform: Accountants? Attorneys? Landlords? The leader of a yacht cleaning crew?

3. GOAL IDENTIFICATION Here, too, you can start this process at the same time you are developing your situational assessment. The intention is to delineate exactly what you are hoping to achieve by integrating a new technology, what problems it will solve, and why these specific goals are a priority. This step is often daunting for organizations, especially if you haven’t previously evaluated technology.

It will be valuable to ask yourself and various team members what is currently working and could be better. You might expand outwards to people in other departments or even a few select end users for input.

If you’ve had initial conversations with potential vendors, use what they have shared about what is and isn’t possible to achieve, as well as where they expect the solution might fit into your operations.

4. VENDOR EVALUATION You want to find a vendor that offers both an outstanding product and dependable support. As such, you’ll want to determine: n Who are their clients? n What types of organizations currently use their product? n Single family offices? Multi-family offices? Wealth Advisors?

Asset Managers? Institutions? All the above? n Are any of their existing clients like your organization?

The answer to the above will provide insight into whether they already have the tools and solutions that organizations such as yours require. To illustrate, let’s return to our spreadsheet-reliant organization. Potential vendor-specific questions include:

n Is there a dedicated individual who knows your business or a

rotating team of customer support specialists? n Do you call a named person or send in a “ticket?” n How solvent is this company and what are its near and

long-term goals? n Where does the vendor sit in the marketplace? n Do they want to stay in a niche space? n Are they positioned to be acquired by a larger company? n Are they in search of another round of investors? (If it’s the

latter, they may be highly focused on client acquisition to grow their figures.)

Take those provided by any vendor with a grain of salt.

After all, when was the last time you provided a reference that couldn’t be classified as biased?

A note about referrals: Take those provided by any vendor with a grain of salt. After all, when was the last time you provided a reference that couldn’t be classified as biased? That said, you can learn a lot by asking three pointed questions: n What do you wish the solution could do that it doesn’t? n What do you wish you had known then that you know now? n What is one roadblock you can help us avoid?

CONCLUSION In an ever more complex world, where family offices and institutions regularly deal with disruptions and challenges, any new technology should simplify your operations, providing additional visibility and ease. Finding the right technology partner can feel overwhelming, but with advanced thought, the right questions, and an inclusive approach, you will be well-positioned to make the best choice. And benefit with the award of a well-designed tech stack.

About Masttro

Masttro provides a single source of full-picture data to give you control, transparency, and peace of mind to make informed financial decisions in near real-time. With end-to-end encryption, data security protocols and easy permissioning to allow access to the right views, Masttro is an all-in-one software platform to manage your total balance sheet for individuals and families.

If you’d like to learn how Masttro can help you, don’t hesitate to reach out: contact@masttro.com

n Does the vendor understand issues around reporting

requirements, data hierarchies, investment structures? n How is the product supported - both during typical working

hours and in off-hours?

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Reinventing The Portfolio Management Experience

Firms that want to attract and retain new investors must be able to deliver a modern, client-centric experience that strikes the right balance between personalized attention and smooth digital interaction. Tim Duffy, Solutions Manager at SS&C Advent, shares how firms can create this custom experience through direct investing and robust technology.

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he pace of change continues to accelerate in the asset and wealth management sectors. Firms are under constant pressure not simply to adapt to change but to embrace and profit from it. Between the influx of data, rationalising fees, and easily accessible trading platforms, portfolio managers are rethinking their strategies and delivery mechanisms. Keeping up with changing industry trends means keeping up with technology.

Between the influx of data, rationalising fees, and easily accessible trading platforms, portfolio managers are rethinking their strategies and delivery mechanisms.

Keeping up with changing industry trends means keeping up with technology.

THE WAY FORWARD: CUSTOMIZATION Direct indexing is growing in popularity. The practice enables managers to customize an investor’s experience by directly holding securities with matching or similar characteristics to packaged and pooled products, such as mutual funds and ETFs. You could compare this strategy to customising a speculative home. You have the same floor plan but can choose designs to suit your preferences and lifestyle. This strategy provides managers with benefits and flexibility they wouldn’t have investing in a mutual fund while maintaining diversification and adhering to the investor’s risk tolerance, preferences, and return goals. The main benefits of direct indexing include tax loss harvesting, portfolio customization, and risk management.

Tax-loss harvesting offsets and manages capital gains from appreciated securities by thoughtfully realising holding losses. In addition, directly holding securities in a separately managed

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account can help combat unwanted capital gains distributions from mutual funds. Many studies suggest after-tax “alpha” of approximately 1 per cent for taxable accounts. Portfolio customization allows portfolio managers to create a more client-centric experience. They can customize portfolios to conform to client-specific values, often in the form of ESG requirements. Some securities and broad themes are excluded or included in a portfolio to align with underlying investor preferences. Additionally, investment firms have more control over portfolio risks. For example, if a client has significant outside holdings or company-issued stocks, direct indexing affords more flexibility and ease when managing those positions.

This passive strategy requires skilled portfolio managers who can build a fund that mirrors the underlying securities of the pooled product. The process of understanding which securities to replace while adhering to an investor’s risk tolerance and preferences can take an enormous amount of time and often sophisticated technology. Factor in the time it takes to place hundreds of orders and your strategy could already be outdated. Therefore, active managers are instead turning to direct investing strategies through personalized and diversified separately managed accounts (SMAs).

DELIVERING ON THE PROMISE OF CUSTOMIZATION Direct investing, or active SMA, strategies follow a similar structure to direct indexing. Managers can still implement tax-loss harvesting and extensive portfolio customization within their active strategies but “unbundle” their clients’ investments from pooled products. With easily accessible trading platforms, the rising generation of investors expects instant, on-demand access to information, including on their investment portfolios. Firms seeking to attract and retain new investors must deliver a modern, client-centric experience to balance personalized attention and smooth digital interaction.

The good news is the average investment firm can now partner with technology providers to deliver on the promise of portfolio customization at scale for their investors. This secular shift is highlighted in a 2021 Accenture survey of 250 asset management executives, in which 80 per cent of respondents said “customization for the masses” will be a definitive growth driver over the next five years.1

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

Traditionally, direct indexing and active SMA strategies were the domain of large institutional investors and high-net-worth clients due to the costs associated with managing these strategies, given the time and resources required to manage individual portfolios. However, developments in the marketplace, such as fractional share trading, decreasing or no-commission trades, and technology advancement, have expanded the opportunity to mass-affluent individual investors. By combining core investment competencies with strong technology platforms, investment firms can proactively provide bespoke portfolio management without increasing overhead expenses.

TECHNOLOGY TO SUPPORT AN ACTIVE STRATEGY Firms looking for a technology provider should seek a strategic partnership to enable growth for their business in an increasingly dynamic and competitive marketplace. Firms should consider scalability and capability when looking for technology to support portfolio customization.

Scalability is a core requirement. Most existing technology platforms are built for firms either managing a small number of complex institutional portfolios or many wealth-focused model portfolios; the right platform will enable firms to effectively and efficiently manage both methods. As firms evaluate solutions, they should consider the current capabilities and the solution’s roadmap; future capabilities should align with a firm’s longterm goals. At a minimum, a direct investing solution should include the following capabilities: Tax loss harvesting Order generation flexibility n Wash sale restrictions n Security equivalents and substitutions n Efficient drift monitoring n Multiple custodial and broker block orders n Integrations to downstream systems like accounting, analytics, and client reporting n n

SS&C ADVENT: TRUSTED TRAILBLAZERS IN INVESTMENT TECHNOLOGY SS&C Advent was one of the original trailblazers in investment technology three decades ago and has stayed at the forefront of innovation ever since, with a singular focus on serving the wealth, asset, and alternative management sectors. Firms worldwide are leveraging our robust technology and services to optimise performance and gain a strategic advantage in an increasingly dynamic and competitive marketplace. Together with our clients, we are shaping the future of investment management.

Firms worldwide are leveraging our robust technology and services to optimise performance and gain a strategic advantage in an increasingly dynamic and competitive marketplace.

1

“The Future of Asset Management,” Accenture, May 12, 2021.

About SS&C Advent

SS&C Advent is a proven and trusted provider of technology solutions and services to investment managers around the world. We help over 4,000 investment firms in more than 50 countries – from established global institutions to small start-up practices – to grow their businesses, minimise risk, and thrive.

We have been delivering unparalleled precision and ahead-ofthe-curve solutions for more than 30 years, working together with our clients to shape the future of investment management.

To find out more and discover our full suite of solutions, visit: www.advent.com

Choosing the right technology to support direct investing and future investment approaches will allow firms to differentiate themselves in a crowded marketplace. Firms embracing this evolution of customization will have an advantage and be well-positioned for the future.

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

ROBOTS IN THE FAMILY OFFICE? NOT AS SCI-FI AS IT SOUNDS

With today’s robotic process automation (RPA) technology, a “digital workforce” could easily take over many family office processes that are still being performed manually, freeing up staff for higher-value work. This article explores opportunities for RPA in family offices and a painless path to increased automation.

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n conversations we’ve had with dozens of family offices, many acknowledge that they would like to operate more efficiently, but that they are somewhat set in their ways. They have people on staff who have been with the office a long time and are used to doing things a certain way. As a result, a lot of their routine, everyday processes are highly manual and time consuming, which raises the risk of errors and delays delivery of important information. Meanwhile, their investment portfolios and entity structures are becoming more complex, their external manager relationships are proliferating, and the number of family members that need attention grows with every generation.

Moreover, family offices are vulnerable to the same shortage of operational talent that is plaguing the wealth and asset management sector. As some of those long-time, loyal staffers start thinking about retirement, will capable people be there to take their place? And will their knowledge of “how we’ve always done things” be transferable?

Family offices are ripe for intelligent automation - a combination of robotic process automation (RPA) and machine learning - to take over some of the mundane tasks currently being performed by hand.

The fact is that many of the routine processes in a family office do not require a lot of human judgment, and therefore should not require any human intervention. Family offices are ripe for intelligent automation - a combination of robotic process automation (RPA) and machine learning - to take over some of the mundane tasks currently being performed by hand. This would free people up for more productive pursuits, such as servicing family members or researching investment opportunities, while removing friction and roadblocks from essential but routine processes.

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BUILDING A DIGITAL WORKFORCE The term “robotic” conjures up images of anthropomorphic machines sitting at desks and shuffling paper around. But these robots or “bots” are actually pieces of software that reside inside computers. Collectively, these bots constitute a “digital workforce” that can interpret information, gather, aggregate, and extract data, sort and route emails, and more. The technology may have sounded like science fiction a decade ago, but RPA is quite commonplace today, easy to implement and increasingly cost-effective, delivering ROI in the form of significant efficiency gains and time savings.

Robotic software can even do sophisticated tasks that require some measure of analysis, such as compiling tax forms, due diligence reporting or compliance checks.

The digital workforce can be trained to perform a wide variety of repetitive, rules-based tasks - logging and paying household bills, for example, or running payroll. Robotic software can even do sophisticated tasks that require some measure of analysis, such as compiling tax forms, due diligence reporting or compliance checks. Think of the time spent simply downloading information from various investment managers’ portals or data feeds, then collating, formatting and feeding it into an accounting system for reconciliation or to generate reports. That entire process can be automated and completed in a fraction of the time it takes a team.

The digital workforce doesn’t replace human talent. On the contrary, it helps people to be more productive and effective in their roles. Digital; workers can perform all the steps in a process up until sign-off, putting operations professionals in the position of

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

reviewing and approving the work rather than doing it themselves. What’s more, they don’t observe office hours or collect overtime. They can run processes overnight and have the work ready for review at start of business.

MAPPING OUT YOUR AUTOMATION JOURNEY So how do you go about deploying RPA in your operations?

Where do you begin? A mistake that smaller offices often fall into is acquiring a piece of automation technology and trying to force-fit it into a particular process to see how it works, usually with discouraging results. If you recognise the value of intelligent automation, it’s important to look at your operations holistically and identify opportunities to automate.

Which tasks are people doing manually that require little or no thought? What’s taking up the most time? Which tasks are highly repetitive? Where will automation deliver business value?

If that sounds like a tall order, you can accelerate the discovery of automation opportunities with a process assessment tool. This takes the guesswork out of intelligent automation by showing you which processes are easiest to automate and which will deliver the most business value - effectively giving you a roadmap for your automation journey.

Once you have identified the processes you can and want to automate, technology can further speed up the implementation by intelligently capturing process details and creating process prototypes.

Once you have identified the processes you can and want to automate, technology can further speed up the implementation by intelligently capturing process details and creating process prototypes. That’s an important point: you don’t have to search for an off-the-shelf solution that is a substitute for your processes. Rather, you can have solutions tailored to your ways of working. Once you have your automated processes in place, you can take advantage of monitoring tools to ensure they are performing properly - in other words, you can use intelligent automation to monitor and manage your intelligent automation processes.

One note of caution: don’t try to do all this yourself. Work with a technology provider that backs its solutions with service, not just to help you get up and running, but to help you get the most value from automation and troubleshoot issues you may encounter. The provider should be experienced and knowledgeable in family office processes and complex, multi-asset class investment operations. You’ll want to know the provider will be there for you for the long haul and is investing in intelligent automation technology.

THE OUTSOURCING OPTION Another alternative to consider is delegating certain routine processes to an outsourcing provider that has already made the investment in RPA infrastructure. This approach helps minimise your internal IT footprint while giving you access to best-practice processes, which should result in faster turnaround times and higher quality output. Outsourcing can often result in further cost savings compared to licensing and maintaining software internally.

Robotics technology is no longer a futuristic vision - it is proven, practical and quickly taking hold across the investment management landscape.

Family offices need technology that can keep up with the increasing complexity of their investment portfolios, entity structures and operational requirements. They need to be able to meet the information demands of family members in a timely manner with reliable data. And they need solutions that help them focus on opportunities and make informed decisions to sustain and grow their wealth. Robotics technology is no longer a futuristic vision - it is proven, practical and quickly taking hold across the investment management landscape. Family offices that adopt RPA stand to realise the benefits of increased efficiency, lower operational overhead, and more productive use of their most valuable asset: human capital.

About SS&C Family Office Services

SS&C’s Family Office Services team offers fully outsourced technology and operations as well as co-sourcing solutions for single and multi-family offices, endowments and foundations. Working in close collaboration with your office, our team delivers a comprehensive suite of technologypowered services, including portfolio accounting and reporting, full transaction support, partnership accounting, and tax accounting and reporting. Hundreds of family offices rely on our combination of technology and expertise to increase efficiency, ensure accuracy, reduce operating costs, and meet the diverse information needs of family members. SS&C offers a one-stop solution that reduces the cost, risk and time to integrate disparate systems.

For more information, email: solution@sscinc.com

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

NEW MODEL CLIENT PLATFORMS

Dan Gregerson, Executive Chairman at Summitas, LLC, talks about how the digital client experience revolution transforms how we engage and interact with the people we serve while improving retention, AuM, and profitability.

H

appy clients require seamless access to their digital lives, material security, and financial partners that exude traits and produce results that build trust. Behind the scenes, operations, IT, and other professionals orchestrate workflows that meet everyone’s needs.

Systems are becoming less predictable as they become more capable. Even though we create the rules for AI systems like Google’s AlphaZero and LaMBDA or OpenAI’s ChatGPT and DALL-E, when their behavior appears creative, even their developers can be surprised by the results.

COMPLEXITY

Systems of interconnected components that include ones with human-like unpredictability will add complexity in the years ahead. Managing it can be like herding cats, so we need to simplify. For example:

Investment in technology focuses externally on the benefits clients enjoy and internally on new insights and better processes. For wealth management firms, the downstream benefits are increased retention, AuM, and profitability. Family offices must ensure technology keeps the family engaged and meets the needs of tech-savvy family members, who expect information at their fingertips.

NEW MODEL CLIENT PLATFORMS New model client platforms hide complexity and inform us of their value through metrics.

n Systems with well-defined protocols for information exchange

are easier to integrate and isolate when problems arise. n Compartmentalising sets of features avoid redundancies

and side effects. n Fine-grained metrics are vital. When running a race, we know

Today’s family offices and wealth management firms navigate a rapidly expanding software landscape where portfolio management and planning, risk analysis, client engagement, CRM, behavior analytics, etc., are becoming more specialized and interconnected. At the same time, the number of solution categories and the competition within each is increasing.

Life is good when everything is whirring, but we risk letting the pace of change disrupt our progress when complexity gets out of hand. Like servicing interest on a growing debt, fewer resources are available for everything else.

Complexity is less a computable function than a human experience resulting from the limits of our ability to appreciate the subtleties of interconnected components and data flows.

Sometimes complexity is outside our awareness, like the connections and signaling between neurons in our brains (whose output is the emergent behavior we call thought). Computer systems are straightforward compared to brains, but not solely because fewer parts communicate. Unlike the innate capabilities of our brains, we define the logic and communication rules governing software.

But something new is happening.

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if we’ve won immediately! Technology investments take time to reverberate through enterprise and client populations. To predict value, we need to see trajectories.

Hiding complexity requires standardization, specialization, and tools to help measure whether we are achieving our goals.

Qualitative factors like net promoter score and client happiness and quantitative ones like feature engagement and usage rates let us know whether clients are engaged.

Metrics are like blood tests for bodies. Measurements mapped to benchmark ranges, and prior results tell a health and trajectory story we need to take corrective measures.

New model client platforms use layered security.

The need for enhanced security and privacy seems evident in 2023, but high net-worth families are most sensitive to the ramifications of personal information breaches. These are some of the measures software companies should take: n End-to-end encryption should be standard. Transport layer

security should use the latest releases. Encryption at rest should employ client and vendor encryption keys and standards-based algorithms.

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

n Data integrity should be an active process integral to the

system that alerts us if encrypted client information changes. n Client platform components should authenticate each other before sharing client information. n Users authenticate themselves using at least two communication channels. For example, an authentication app on a mobile device generates codes entered with a Login ID and password on a website. n Policies, controls, and systems should be in place to detect and block intruders and malware. n Backups should be real-time and flow to different geolocations. In the event of a disaster at the primary location, the secondary site must be up and running within minutes with little or no loss of work. n Instrumented systems, applications, and networks should report heavy loads, slowing performance, and other problems before they escalate. n Physical and perimeter security should include “need to know” rules that protect mission-critical assets, even when malicious or negligent insiders exist. n Auditable programs like SOC 2, GDPR, CPRA, and ISO 27701 that improve governance, IT security, and compliance management will help keep the company resilient to cyber and other threats.

New model client platforms are architected to abstract and simplify their connections with external systems containing the information individuals and families need.

By adding value beyond financially focused graphs, charts, and statements, advisory firms reduce complexity in their clients’ lives and make it more likely they will stay through economic downturns. An analogy from data aggregators is apt; they built connectivity to client banking, brokerage, and other financial accounts 20+ years ago to make it possible to generate a complete picture of assets managed by many custodians.

Today, all portfolio management and reporting systems use data aggregation as a primary connection layer at the lower bound of their systems. Some companies still build custom solutions to gather information from alternative investments and heldaway accounts, but most use what others have built and tested.

Data aggregation is a complex, maintenance-intensive problem that requires cleansing, normalising, and synchronizing financial data from numerous sources and maintaining conformity with financial service providers’ access methods and protocols.

Like portfolio management solutions using data aggregators, new client platforms add an abstraction layer to simplify collecting information from different systems and human sources.

New model client platforms do not favor one vendor over others and will make connections to anyone.

end-client portals to access their core products should avoid insider information that weakens the APIs and protocols created for their developer communities. Vendor-neutral integration aims to maximize choice, flexibility, and industry progress by preventing cross-linked technology stack components.

Loosely coupled systems reduce complexity. Well-defined protocols open to everyone promote Lego-like connection standards and greatly simplify problem resolution. They make it easier for technology buyers to swap out components when superior alternatives arrive. Strategically, vendors and technology buyers are better able to focus on core competencies leading to a livelier ecosystem. Specialists produce superior results in disciplines ranging from cardiology to astrophysics. Technology is no different.

New model client platforms are active hubs for clients, advisors, and administrators; they create value in new places and add stability to resist unexpected events.

New model capabilities include: n Branded customized solutions with little or no programming n Support for secure virtual private conferencing to instantly address client matters and increase engagement n The ability to “push” content to client cohorts, informing them of events, new capabilities, and thought leadership that highlight the organization’s value, accomplishments, and vision n Reducing costs by automating the delivery of onboarding documents, statements, reports, contracts, legal and tax actionable items, and financial snapshots collected from other systems n A secure place to keep safe and share one’s most important documents, photos, videos, contacts, calendars, and communication to keep people engaged The digital client experience revolution transforms how we engage and interact with the people we serve while improving retention, AuM, and profitability.

About Summitas Platform®

Summitas Platform® is our Software-as-a-Service (SaaS) system accessed through Web browsers and mobile applications. Our customers use Summitas to simplify operations, increase communication, and provide a safe way to organize, protect, and share information - all from one place. From the Digital Vault to collaboration tools, integration of financial information, and the ability to streamline workflows, a branded Summitas portal provides measurable value to a growing community of family offices, wealth advisors, and other client-facing businesses.

For more information, visit: www.summitas.com

Client platforms should enforce loosely coupled connections (published APIs, export/import) to highly specialized Fintech, CRM, and file system solutions. Vendors who must deliver

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TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

THE WHATSAPP SCANDAL, WEALTH MANAGERS MUST AVOID 2023

Dr Vincent Pignon, Founder and CEO of Wecan Group, discusses the compliance and privacy features around instant messaging applications that are necessary for financial services firms to operate efficiently and smoothly within the regulatory and legal requirements.

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he unprecedented fine from the SEC, exacted on 16 Wall Street banking giants in 2022, caused ripples on both sides of the pond last year.

Over $2bn in punishments doled out to a group consisting of names such as JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, was executed as staff were found to have discussed deals and trades on private messaging applications such as WhatsApp, that weren’t being suitably monitored.

At the beginning of 2023, banks began to penalize employees as much as $1 million for WhatsApp breaches.

At the beginning of 2023, banks began to penalize employees as much as $1 million for WhatsApp breaches for Morgan Stanley and after paying more than $200 million in fines, Deutsche Bank is docking the bonuses of employees who misuse WhatsApp. And this is only the beginning of a long series, Wells Fargo & Co having announced to be the next on the list. And while the U.S. regulator has been proactive, it is inevitable that all global regulators will follow suit.

FIRST OF ALL, WERE THESE FINES AVOIDABLE? Inappropriate use of WhatsApp has been at the center of several banking scandals in 2022. In addition to being the motive for this latest round of fines, it was also widely reported as the reason for which several senior executives lost their jobs at Credit Suisse and other such major banks.

In reality though, the story didn’t start this year – it can be traced all the way back to 2016 when WhatsApp first came to prominence as the messaging platform of choice. Ever since, it

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has only grown in popularity and has become more and more interlinked with the communication ecosystem of most major global financial markets.

The pandemic and subsequent shift to hybrid working certainly helped to amplify the extent to which market participants relied on WhatsApp to operate smoothly, but the real issue is that firms have not historically invested the appropriate levels of funding into technological solutions, which are instead regarded as back or middle office issues.

THE SIZE OF THESE FINES ARE HUGE AND OTHERS REGULATORS WILL FOLLOW SUIT This is not an issue that is exclusive to US investment banks – this is something that is rife across the global financial services sector. However, from my perspective, it shouldn’t necessarily be viewed negatively. There are a lot of benefits to using applications such as Instant Messaging provided they comply with regulatory, legal and cyber security requirements.

There are a lot of benefits to using applications such as Instant Messaging provided they comply with regulatory, legal and cyber security requirements.

It gives a lot more flexibility to communicate with clients and counterparties, and in an increasingly competitive landscape, being able to communicate with clients in a way that makes life easier for them is now a commercial necessity. The focus should instead be on enacting strong risk management and using technology to liberate staff to operate in the way that they feel is most effective from a commercial perspective.

Moreover, clients are more prone to installing and actively using a multi-purpose app compared to a closed one. The first to understand this trend will gain market share and improve their customer experience by systematizing the use of open instant messaging solutions and not unilateral or bilateral communication channels, as we have with E banking for example.

TECHNOLOGY TRAPS WEALTH MANAGERS MUST AVOID

THE RECORDKEEPING REQUIREMENTS In my opinion, the Swiss and European regulators would benefit from being more prescriptive and taking a lead from the US approach. The US is very clear through regulations such as the recordkeeping requirements.

Their operating models are also extremely different. And as such, the way that they address the question of WhatsApp’s role in their business will differ. Whilst banks are geared towards a high volume of trading activity, wealth managers generally operate at a relatively slower pace. The volume of data that they deal with is vastly different.

such, the service does not offer the stringent compliance and privacy features that are necessary for financial services firms.

Messages can be stored indefinitely on WhatsApp servers and may be freely shared with third parties. In addition, WhatsApp lacks the proper safeguards and compliance features that are expected from wealth managers providing investment advice, such as sensitive data storage compliance and authentication protocols. Without these protections in place, wealth managers cannot ensure that their clients’ and partners’ information will remain secure and compliant.

It is most certainly, in my opinion, the main Technology Traps Wealth Managers Must Avoid in 2023.

The problem is that communications, texts, audio and video from WhatsApp are not recorded. And even if recording all these exchanges, WhatsApp will never be a professional application.

As with email, a customer expects a response, even if a wealth manager is not present. This is not possible with WhatsApp.

WHAT ARE THE NEXT STEPS?

THE CYBERSECURITY RISKS

Regulators will gradually sanction all banks and financial intermediaries for using non-compliant applications such as WhatsApp. This is inevitable. And if all banks ban the use of WhatsApp, they will start sanctioning their employees one after another.

With the use of email and instant messaging solutions, all banks are subject to fraud. Customers who communicate with financial intermediaries have their emails or applications hacked every day. Banks are putting in place palliatives such as call backs that have high costs, penalize the customer relationship, and do not eliminate these risks.

At every meeting with a bank, a family office, or a financial intermediary, I hear that there has been a 400k, 500k, 200k fraud due to the hacking of the client’s account, which is not made public due to reputation damage concerns. Hackers are becoming increasingly sophisticated, and this trend will only grow.

On the other hand, the uses of WhatsApp are not controlled by the banks at all. Hundreds of groups co-exist without the knowledge of the management. And employees leave the bank and still have access to sensitive data. For these reasons, keeping personal instant messaging applications is not sustainable, it will be necessary to find professional ones.

THE PROTECTION OF PRIVACY If the fines are severe in the US while WhatsApp data is stored in the US, it is possible to imagine that the fines in Europe, Switzerland and the UK will be much larger as bankers and banks send customer data over Whatsapp to the US, which becomes subject to the Cloud Act. The 2 billion in fines we saw in 2022 is just the tip of the iceberg. What comes next is going to be much more painful for banks, financial intermediaries, and all regulated professions due to GDPR, nLPD or even local regulations.

There will be no turning back on the uses of instant messaging applications. Customers are used to it and will want this type of interaction.

However, this is a stopgap measure, not a solution. The solution is to offer wealth managers and financial intermediaries and customers a compliant, secure solution that has the same functionality as WhatsApp but for dedicated high-net-worth customers or for regulatory and legal requirements.

About Wecan Group

The award-winning Wecan® Blockchain-based applications that guarantee optimal level of trust, privacy and security help over 100 financial institutions from more than 5 countries with two solutions: • First, Wecan offers a compliance platform to manage and share compliance data and documents to allow auditability, privacy, smart storage and data quality with Wecan Comply.

• Second, Wecan offers a must-have professional and compliant alternative to WhatsApp for companies with Wecan Connect. This is an instant messaging service supporting digital signature with biometric security, authentic forward, blockchain auditability and third-party plugins.

For more information, email: contact@wecangroup.ch

WhatsApp is a peer-to-peer messaging app that was designed primarily for personal communication between individuals. As

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