Swiss Family Offices Outsource Back Offices

by Carla Johnson, Investors Offshore.com

22 August 2005

The research, which was carried out on behalf of Northern Trust by Scorpio Partnership, an independent, London-based, wealth management strategy consultancy, was conducted amongst family offices and family office intermediaries in Switzerland, working with families with at least €60 million (US$75 million) of assets advised in Switzerland.

The research showed that the most pressing strategic imperative of the family offices interviewed is the provision of detailed, consolidated reporting to family members.

“At present, this process seems to be hindered by a lack of transparency and poor quality data from some managers and custodian banks, as well as the lack of tailored systems within the family offices themselves to handle the complex investment accounting necessary to the task,” observed Lucille Knapp, Head of Wealth Management EMEA, Northern Trust. “The role of sophisticated, robust technology in improving data quality, format, delivery and eventual processing cannot be underestimated – it’s critical,” Knapp emphasised.

The research also showed that, overall, respondents felt that outsourcing the family office’s back-office operations would lead to more effective risk management whilst freeing up resource – both human and financial – within the family office to focus on core activities, such as the provision of investment management and investment advisory services to family members. Respondents indicated that the outsourcing of asset administration processes is seen as an efficient solution to the problem of the high costs associated with the ongoing development and maintenance of leading-edge technologies. These are needed to support complex investment strategies and to meet increasingly demanding requirements from family members for more frequent and transparent reporting.

“The changing dynamics of the wealth management industry in the last five years has thrown the spotlight onto the role of family offices as providers of independent services to wealthy families, yet the future shape of the family office segment in Europe remains unclear,” commented Sebastian Dovey, Managing Partner and Head of Consulting at Scorpio
Partnership. “However, the trends highlighted by this research do clearly point to a major change in the attitude of Swiss family offices regarding the provision of custody and fund administration services by third party asset servicing specialists as, traditionally, Swiss family offices have tended to perform back office functions in-house, mainly for reasons of confidentiality,” continued Dovey.

The most notable trend highlighted by the research was the acknowledgement that outsourcing may be an effective solution to the problems in the back office and, therefore, that many Swiss family offices are starting to seek third party partners for their asset servicing needs.

Lucille Knapp said, “Our findings demonstrate that Swiss family offices are seeking to improve the efficiency of their back office processes through improving data quality and by moving towards automated solutions to their investment accounting and data aggregation challenges. We at Northern Trust have developed innovative solutions and our projected total technology spend over the next three years is approximately $900 million, to ensure enhanced administrative efficiency for our clients. Most family offices would not wish to invest this much in developing proprietary asset administration technology.”

Knapp concluded, “The Swiss family office segment is a market in transition. Looking ahead to the future, outsourced solutions for the middle- and back-office operations of a typical Swiss family office are increasingly likely to become the norm.”

Northern Trust Corporation (NASDAQ: NTRS) is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and affluent individuals worldwide. Northern Trust, a multibank holding company based in Chicago, has international offices in seven countries. As of June 30th,
2005, Northern Trust had assets under custody of $2.7 trillion, and assets under investment management of $590 billion. Northern Trust works with more than 300 families in 15 countries representing approximately 25% of the Forbes 400 global families. Northern Trust custodies €77 billion (US$100 billion) on behalf of these family relationships and manages €16 billion (US$20 billion).

The Scorpio Partnership is a wealth management strategy consultancy based in London. The firm, founded in 1998, has conducted assignments with over 120 private banks, fund managers, family offices, technology firms, resource management firms and related service providers operating in the industry. Scorpio Partnership specialises in qualitative
interviewing of high-net worth individuals and wealth management industry professionals to support strategic business developments.

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