Q&A with Rob Mallernee of Eton Solutions

When it comes to tax time, it can be a painful process. Most ultra-high-net-worth families have complicated financial arrangements, incorporating numerous family members, trusts, LLCs, partnerships, and other entities. To properly track and report on these “multi-entity” family structures for tax purposes requires detailed record keeping and a comprehensive understanding of complex tax rules and regulations across many subject matter areas.

When offices get ready for tax season, it can be a bear to aggregate all the data from many disparate and siloed systems. Often tax work comes in large peaks and valleys such that it is difficult to meet deadlines during busy season and difficult to keep staff busy during the rest of the year.

A step in the right direction is to implement a unified system for the continuous tracking and reporting of the affairs of Ultra High Net Worth Individuals. The difficultly lies in tracking all activity in a multitude of ways. Investment reporting, financial reporting, trust accounting, partnership accounting and tax accounting all require distinct categorization methodologies. Adopting a platform that is designed to facilitate all of these classifications simultaneously allows the office to smooth the peaks and valleys of tax work and also more effectively delegate that work to the right organizational level.

Most family offices today have multiple, discrete systems with little or no integration. These include separate GL, Investment Reporting, CRM, Document Management, Partnership Accounting, Trust Accounting and Transaction Processing applications all being used within a single office. The manual business processes used to integrate these disparate systems subject to significant risk of error. Each disparate technological application and process an office utilizes increases the likelihood of incorrect data impacting the office or family.

But for family offices, which can be seen as attractive targets for cybercriminals looking to defraud an account, the risk goes beyond potential staff error leading to inaccurate information.

Cybersecurity vulnerabilities caused by holes in family office technology infrastructures impact disaster recovery, business continuity, and the ability of an office to survive a focused cyber-attack. And the more disparate systems an office utilizes, the more opportunities a bad agent has to breach the system and wreak havoc.

Simply put, spreadsheets are ‘separate-sheets’. They are typically siloed and do not connect to anything else in the family office. Spreadsheets are also extremely hard to audit and maintaining effective change management control is very difficult if not impossible. Spreadsheets are great for some calculations but not as the family office centralized book of record. Hard-working office staff are often forced to use Excel spreadsheets and high-cost manual labor to link these data and applications together, creating major inefficiencies and risks that are costly to the offices and the families they serve.

The alternative to spreadsheets is a fully integrated enterprise system with an integrated data model. This type of system can enforce access and maker checker controls to ensure the data in the system is accurate and up to date. Since each data item is stored once the significant task of keeping all systems in sync is eliminated. The use of an enterprise system also allows each office to benefit from the best practices developed by other family offices and incorporated into the system.

As the family office grows in complexity, number of entities, and new calculations required, spreadsheets become cumbersome, risking and unmanageable. Adopting enterprise level technology allows Family Office employees to spend time in analysis and decision making, not managing data.