How family offices can boost efficiency with artificial intelligence

The shift to digital and virtual has increased the use of modern AI by family office partners, offering a chance to futureproof operations.

In brief

• Family offices have a major opportunity to modernize processes by leveraging the AI investments of their professional and financial services firm partners.
• AI can improve how family offices analyze unstructured data in processes ranging from accounts payable to tax transparency.
• To implement AI technology, family offices should determine objectives, designate a leader and engage the right providers. 

While artificial intelligence (AI) may seem futuristic to some family offices, most are already using it. The ongoing digital transformation and “virtualization” of the family office, a trend accelerated by the pandemic, means most operational infrastructure sits in the cloud. Meanwhile, across industries, the pandemic has also accelerated a complementary trend: rapid AI adoption. With vast amounts of data available to many of the large adopters, like major professional and financial services firms, AI has been fed the requisite quantities of information to be more effective for many tasks. Together, these trends add up to a significant AI opportunity for family offices.

Family offices might be surprised by how much AI technology their partner and service provider networks are using. From hedge funds that predict market movements to trade using robots, AI is a ubiquitous feature of our daily interactions in the wealth management industry.

Modern AI isn’t just simple robotic process automation (RPA), a predictable system that does a certain thing at a certain time, given a certain input, constrained by its own design and unable to adapt. AI, however, can handle new situations, solve them without needing to be reprogrammed by humans, and continuously use new available data. Family offices can capitalize on the increased sophistication of their partners’ AI, honed and trained by the exponential amounts of data at these companies’ fingertips.

For example, to process legal documents, AI needs to be trained on tens of thousands of these documents. Once it has been fed the relevant data, it learns how to solve problems on a large scale, which can then be smoothly applied to smaller scale endeavors. This should be useful for family offices, as they can benefit from working with law firms that have adopted and bolstered their AI through the pandemic.

So how can family offices join in the movement? Family offices that hesitate to understand and leverage partners who use sophisticated AI will likely miss opportunities to enhance the legacy of the families they support. As the shift to digital and virtual accelerates, family offices can seize this moment in time and modernize and futureproof their operations.

Using AI to boost efficiency

Due to the complexity of their work, family offices must aggregate and analyze huge amounts of research, data and analytics. AI can help build these capabilities in such areas as managing the daily flood of unstructured data, investment decision-making and protecting the office from cybersecurity attacks. It can enhance speed, efficiency and accuracy, which can free up family office staff to focus on activities delivering long-term strategies, scaling operations and potentially reducing costs.

Consider, for example, AI’s role in a typical family office process — managing accounts payable. AI can detect when invoices arrive in the inbox, employ optical character recognition and analyze billing information. It can determine if the information is complete and incorporate it into the general ledger system, generating entries and validating whether payment is acceptable. It cues up the entire process, saving administrators time so they can focus on critical “human in the loop” activities, such as the review, authorization and release of payments.

Another use for AI is tax transparency, scanning Schedule K-1s and synthesizing their information faster than any human can. Professional services firms have made huge investments in AI that helps process K-1s, which family offices can leverage. This reduces the work of manually sifting through papers and lets administrators focus more on high-impact decisions.

In addition, unstructured data management is an example of AI’s role in familiar processes. Family offices must sort a constant flood of information from multiple channels — for instance, monthly statements, investment research, or critical tax or legal documents. Document storage systems can use AI-powered search engines that allow users to shift from needing to know where a document is stored to knowing what it is they want to find.

AI implementation strategy

The strategy for implementing AI in a family office involves three steps:

1. Determine the office’s road map
2. Establish governance
3. Secure partners

Before implementing any new technology, family offices should first review the family’s objectives and map them to where the business is and where it needs to go. From there, family offices can establish their governance and find the most appropriate partners.

AI technology implementation must be a board-level concern. The family office should designate one person to be in charge of AI technology expansion, including overseeing privacy and security. This person may be a third-party technology partner or chief information security officer. No matter who is selected, this leader should have an enterprise-wide view of the organization’s information and security, including the security of its partners. A secure system today can be easily compromised tomorrow.

The last step is securing partners. Engage only top partners and service providers who use AI trained on large volumes of data. A partner should be able to meet the family office’s security requirements; the provider will also require that family offices meet its own security standards.

Embracing AI can seem daunting, but the truth is, AI is already touching operations in virtually every family office. With many operating with a “100-year outlook” — a multigenerational vision that aims to anticipate challenges and opportunities and plan for longevity — family office leadership should explore all the ways AI touches them; how they can manage its role in their businesses; and how they can choose, implement, and manage optimal and secure systems. With AI already ubiquitous, now is the time to put it to work to deliver even better service and results to the families it serves.