Business

Partner Content: Navigating the Complexity – A Guide to Integrated Accounting Systems for Family Offices

In the intricate world of family office management, where finances are complex and decisions are crucial, not having correct and timely information when it is required can be both frustrating and damaging. As family offices grapple with diverse accounting needs ranging from portfolio management to partnership accounting and general ledger upkeep, the allure of integrated solutions grows alongside increasing complexity. However, the implementation time, cost, and risks also increase, requiring careful adjustments in planning, staffing, and training.

Integrated Systems Defined

Navigating the maze of family office solutions can be confusing, so it is important to properly categorize them to make meaningful comparisons. Dr Tania Neild, CTO and owner of InfoGrate, a specialist family office consultancy, provided a handy definition of integrated systems at a recent industry conference organized by MyFOTech.net. Dr Neild defines an integrated system as one that handles four or more out of the six accounting types like cost accounting, tax preparation and adjustments, fair market value (unrealized gain loss) reporting, ownership/partnership accounting, omnibus cash management, and trust accounting (principal and income). There are fewer than a dozen systems that belong to this category, and the accounting module is often considered the cornerstone of the system.

Advantages and Disadvantages

At its core, an integrated accounting system serves as a holistic solution for managing multifaceted accounting requirements, offering a unified platform to streamline operations and eliminate the complexities associated with managing disparate systems. These systems offer a single source of truth, meaning the data is the same across various modules, which eliminates the need to integrate various systems and reconcile the data flowing between them.

Implementation and Training – A Specialist Business

However, the path to harnessing the full potential of integrated systems is not without hurdles, so planning for them is critical. Though complex, with extended timelines, high costs, and certain risks, implementation can be managed effectively. Organizations can ensure smooth integration by assigning a dedicated and specialized project manager to oversee the transition and translate old processes into the new system. Thorough testing and effective change management lead to better organizational buy-in and smoother operations. Customized training for different user groups (front office, mid office and back office groups) also emerges as a crucial component for successful implementation, as integrated systems are used across various departments. 

Chart Of Accounts and Historical Data – A Project Within a Project?

Moving from multiple systems to one unified platform involves standardizing and aggregating multiple types and sources of financial data into one integrated system. The modular design of the integrated platform, along with its multi-entity, multidimensional, and multi-currency features, ensures a consistent user experience across all departments and transaction types within the family office. The ‘Ledger and sub-Ledger’ design principle supports the nuanced needs of both wealth management and accounting operations. Historical data can be imported into specific sub-ledgers: accounting data into the General Ledger, banking data into the Bank sub-ledger, vendor data into the Vendor sub-ledger, portfolio data into the Investment sub-ledger, and so on. Only opening balances are needed to simplify the data migration process, subject to project requirements. This approach streamlines this process significantly.

Functionality Across Modules and Interoperability – The Need for Truly Connected Systems

In the world of family offices, isolation is not an option. They continuously seek and integrate data from a multitude of market sources, including banks, brokers, aggregators, and data providers. Hence, the systems must have powerful, modern technological capabilities to connect securely with these diverse market players. Family Offices need financial management solutions that can be expanded beyond core functionality and integrated with other applications and data stores. This not only gives accountants, investment managers and beneficiary owners an optimal platform for operating the family office, but also offers deep insight into the business to help guide operations and strategic initiatives through rich reports and analytics.

Security 

While family offices aim to focus on managing their investments and mandates, security is a crucial consideration when selecting systems that handle sensitive data. Industry best practices, such as the ‘Zero Trust’ security framework, are typically part of the requirements and are usually enforced within the family office IT policy. The new financial system must adhere to this overarching security framework to protect the organization’s financial data. An integrated financial management system reduces cyber risk exposure by decreasing the number of systems needed for financial operations. This transition also mitigates risks associated with proprietary systems that use varying security standards and directories, which can be either overly simple or excessively complex.

Additional security measures are necessary when the family office implements electronic payment facilities, such as a SWIFT network connection or other secure payment mechanisms. In these cases, ‘banking-type’ security levels and relevant banking security standards must be examined.

Pricing 

Pricing considerations also play a pivotal role in adopting integrated systems, with costs varying based on factors such as complexity, number of entities, and required services. Family offices must conduct thorough due diligence to assess pricing structures and evaluate return on investment based on their needs and current setup. Annual fee costs can be substantial, in the range of $100,000 to $500,000, yet they typically align with the costs of acquiring individual systems for various accounting requirements. 

Maxime Wattel is the managing director of Elysys SARL

With thanks to MyFOTech and InfoGrate for sharing insights from their survey and report on integrated accounting systems.

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