Artificial Intelligence for Family Offices I New Trends in Fintech
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Family Offices and AI: The Transformation of Traditional Wealth Management

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Just about ten years ago, there were only about a thousand Family Offices spread across the world.

However, within a busy decade filled with economic recessions, political upheavals, and global turmoil, the number now stands at a tenfold increase. That though has not been the only change that these offices have seen.

Over the last decade, Family Offices have evolved from the small agencies that once handled single-family finances into sophisticated firms that serve multiple clients and handle assets worth $ 500 million – 1 billion on an average. This should not come as a surprise considering that the accumulated wealth of billionaires shot up to $ 9.1 trillion within the same decade, with most of them looking at renowned Family Offices for hands-on wealth management.

Apart from professionalised (and personalised) offerings, there has also been a much larger shift in the way these firms operate. There is a higher focus on accessibility to information, real-time analytics and reporting, and customised solutions to widespread problems like cyber-security. As a result, the digitisation of these offices has now become inevitable, leading to a modern Darwinism within this industry – those who cannot survive in this new landscape may just face extinction.

The Evolution and Digitisation of Family Offices

Though Family Offices have largely operated within their own private and closed ecosystems, they must now adapt to modern solutions like Big Data and Artificial Intelligence if they hope to provide comprehensive and meaningful solutions to their clients. Tech-driven advisories are more likely to offer holistic solutions that combine classical and behavioural finance, using utility functions to help clients select their preferences.

For instance, at Kristal.AI, our algorithm operates on the Black Litterman Model in order to optimise the suggestions offered by our in-house Investment Committee. Furthermore, it uses a range of statistical tools such as the Monte Carlo simulation, along with advanced hierarchical clustering, to map various scenarios and offer solutions that align with our stakeholder’s financial objectives and preferences.

Analysis, Reporting, and Accessibility

Investors today are also far more demanding of advanced analytics, rather than making do with basic metrics such as volatility, PE ratios, profitability, and revenue. Stakeholders expect access to more comprehensive investment predictions and reports derived from Advanced Pattern Recognition and Predictive Analytics. Family Offices that rely on traditional tools cannot hope to offer the same.

Moreover, market scenarios today are impacted by a host of factors including the unpredictability of social media sentiments, web traffic, and proprietary web content – factors that do not necessarily fit the older analytical moulds of legacy software.

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At Kristal.AI, we always try to stay one step ahead of the digital curve. Our multi-asset reporting model ensures that we do not rely heavily on legacy software, and can offer curated and tailor-made strategies based on real-time analysis. Our use of machine learning and data processing applications ensures that we can offer our clients structured information sought from in-depth analysis of multiple factors including events, political factors, social media, and news.

We also task our AI with automatic portfolio rebalancing based on this information, and the entire process occurs in a highly transparent manner. Our clients have complete access to all the data that goes into their portfolio modelling, and how and when we decide to rebalance their assets.

Coming back to Family Offices, much has been said about their 100-year outlook – a strategy that aims to preserve a family’s wealth across various generations. In order to do so successfully, these offices must have impeccable data creation and storage abilities. Then they need to sort through all that knowledge and re-organise it to meet current standards – a job that AI was born to do.

Not only does AI study and learn from data to offer customised solutions, it also learns from market factors and offers strategies designed to both grow and protect a family’s legacy.

Security and Risk Mitigation

Machine learning, as well as Big Data, can help analysts identify crucial market trends and points of weaknesses. They not only allow wealth managers to predict the onset of danger, but also help them make more astute decisions by continually offering fresh points of reference. The use of AI algorithms don’t just help Family Offices enhance their overall portfolios; they also lower costs and overheads, increase speed, and ensure efficient risk mitigation.

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Of course, with the advent of secure distributed ledger systems and new currency systems like Blockchain, Family Offices can enjoy the perks of automated post-trade and compliance processes, secure platforms, and better storage and tracking of financial assets.

A 2017 report from Campden Wealth and Schillings says that 28% of Family Offices worldwide have been victims of cyber crime already. Cyber attacks have been on the rise, and with Family Offices offer a single-point entry into sensitive data. Considering that Family Offices handle about 50% of the global UHNI assets, this is a serious cause for concern.

The threat here is bigger than a potential loss of millions – it can also lead to blackmail, extortion, and smear campaigns against the titans of industry and society. Centuries ago, one would have prevented that by keeping things under lock and key – technology can do a much better job of keeping the peeping Toms away in today’s world.

The Last Word

Family offices currently manage 44% of the $ 9.1 Trillion held by the world’s billionaires. Though this number may indicate that these offices are employing the best practices within trading to manage these funds, results from market studies have not been that glowing. Family offices need to shrug off the fear of digitisation and the attachment to old ways.

After all, even the Rockefeller Family Office now handles a whopping 250 clients– though it was once known primarily for its total exclusivity, and the art hanging in its 56th floor workspace.

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.