In recent years, the family office industry has exploded in growth and complexity, with some large firms becoming true capital-market players with substantial influence.
For example, Michael Dell’s investment firm, MSD Partners, hired Goldman Sachs exec Gregg Lemkau to form a new merchant-banking platform for family business owners, family offices and founders, closing a $14 billion flagship fund. And at the end of last year, the Pulte Family Office, an activist shareholder in Virtu Financial, pushed for the publicly traded firm to sell itself to either a third-party private equity firm or another public entity.
We are officially entering an era in which family offices are becoming increasingly complex and more engaged with various third-party financial institutions and even engaging in club deals for private market activities. Having these multiple touchpoints invites a moment for family offices to step back and consider: “How do we protect our wealth and legacy and yet scale all these external interactions?”
Enter the family vault operating system (FVOS), which is a platform designed to securely organize and share important family information, documents and photos. The FVOS represents the evolution of global electronic content management (ECM) trends that developed in the 1990s. In essence, ECM platforms are becoming vertically integrated solutions that incorporate specialized functionalities, including customer relationship management features, to deliver centralized experiences.
For family offices, the FVOS creates a digital document shield and living archive for the office and its enterprises while remaining deeply connected to its network of third-party financial professionals and institutions. This is critical for family offices, as no single outside party — such as an accountant, wealth manager, financial adviser or banker — has had the responsibility of creating a single source of truth for all family documents.
While family offices have various third-party financial institutions and professionals handling their complex needs, they lack a centralized “single source of truth” for critical documentation across transaction and estate matters.
Sure, CPAs and law firms might have certain look-back capabilities, but they are not legally required to keep all documents indefinitely. CPAs, for instance, are not required as tax preparers to keep their client’s records for longer than three years.
Overall, as family offices become complex — placing greater focus on private market transactions such as club deals or direct co-investments alongside private equity funds — establishing an FVOS has the potential to create transactional scale across all touchpoints with third-party financial institutions and also protect the family.
The FVOS encompasses critical end-user experiences and can protect the family in these various ways:
- Provide advanced third-party sharing between the family and third party institutions through a centralized document tracking dashboard with advanced roles/profile controls that support document visibility capabilities. These critical features help family offices monitor third-party access, track activity and ensure secured document-handling interactions.
- Document key performance indicators that help digitize all family documents and deliver an audit trail on document KPIs, helping family offices digitally track documents by various indicators such as age/vintage and other meaningful data points. Family offices need to understand when critical documents (estate, investment, legal) are aging, to stay aware of the various service providers accessing these sensitive documents and how third-party providers are performing in their service to the family office.
- Integrate document dashboards with embedded customer relationship management capabilities. With the rise of artificial intelligence and lower costs of computing, technology platforms can afford to engage in crossover capabilities. FVOS digital vaults must evolve to include household and contract management system capabilities, thereby empowering families to truly manage their closely held relationships with supporting digital documents.
- AI capabilities embedded into optical character recognition solutions empower all members of the family to adopt new technology standards. OCR enables members to scan hard documents and archive all critical aspects of a transaction, estate planning and miscellaneous assets. All together, this helps family offices centralize and build an internal “single source of truth” that helps subsequent generations manage through periods of turbulence and disruption. For family offices entrusting the next generation to engage in private equity transactions or represent the family in club deals, building an FVOS becomes all the more critical.
- Business-to-business-to-consumer (B2B2C) is a must-have for the FVOS. Companies such as FutureVault.com, an AI-powered digital vault provider, has established corporate vaults for institutional wealth management firms such as CI Financial and Corient but also the consumer (individual family experience) for multifamily offices. The ability to establish multilevel vaults from B2B2C is critical for family offices, as there are often multiple legal entities and potentially a core family enterprise or business where the technical capability to shift from a corporate vault to a family vault is both critical and legally necessary.
One of the greatest risks to family offices stems from their exposure to third-party financial professionals and institutions. When capital and ambitions meet, it's crucial to ensure that institutions, advisers and service providers do not overcharge or complicate transactions unnecessarily.
Overall, establishing a digital document shield around the family office through an FVOS framework helps bring a unified front between the family entity and any third-party constituents and trusted advisers.