In an increasingly complex investment landscape, accurate, real-time data is crucial for family offices to maximise returns and stay ahead of the competition, yet it is rarely available to them. In this article, I explore why making investment data accessible to wealth managers and setting up standards are among the real challenges facing family offices, and how jurisdictions such as Luxembourg can help.
Without the necessary information to hand to support their decision-making process, many family offices may currently be making important investment decisions in the dark. As they become more sophisticated, family offices need to have access to organised, real-time data, similar to fund managers or wealth managers. Data that family offices require includes benchmark data, budget vs. actual, as well as KPIs. Having access to this data will support them in their investment decisions.
From static to dynamic data
Having access to data such as cash at bank and project costs evaluation would allow family offices to judge a situation in real time, enable them to make complicated decisions more easily, manage investment risk, and seize opportunities quicker.
However, there are a number of factors that make accessing this data more complicated. The finance industry is based on dynamic banking data, but the data of interest to family offices, relating to non-financial assets such as real estate or private equity, tends to be older and more static. Static data can only provide a snapshot of a situation at a given moment in time, which is far removed from the real-time decision-making process. The challenge for the wealth management industry is to move from a world of data that is currently centred around remote reporting, to a dynamic reporting style that would offer an immediate and complete understanding of an investment environment.
Impact of MiFID II
MiFID II has been a game changer for wealth managers, finally allowing them access to dynamic bank data. For decades, this information was protected and distilled into standardised reports. But now MiFID II obliges banks to open up their information flows and provide access to their data, meaning that family offices could retrieve the data and utilise it, along with other sources of information, to get a full picture.
While this would put family offices in a better position to make investment decisions and have comparable data sets – a move that is needed to conduct family business – the banking industry is struggling to make this change.
The reluctance to make the changes required under MiFID II, however, are more due to the technological complexities this will bring to the banking sector, rather than a reluctance to share data. From an operational point of view, facilitated access to information will allow everyone to utilise the data. Since this data isn’t just financial, but also concerns other asset classes such as private equity, it would be possible to collect information on assets that family offices are invested in. This data can then be standardised so that it is comparable.
Building Wealth Administration 2.0
Yet under MiFID II, the Luxembourg government could push banks to get together and facilitate access to data, granting everyone standardised access to information via a technological platform. One of Luxembourg’s strengths is that most of the main players in asset management are under its roof, meaning that the country has a crucial role to play due to its data protection regulations.
In order to make the data accessible in a simple and standardised way, the Grand Duchy could also touch base with the major private equity players present in the jurisdiction who are already capable of exchanging information on their activity. The emergence of data now offers the technological solutions that can create tools for comparative analysis between all types of investments. This will remove the analysis barrier between liquid financial assets with highly standardised data and non-financial alternative assets with highly disparate data.
The strength of Luxembourg is that it brings together almost all the players involved in wealth and asset management in its territory, such as banks and private equity professionals. If all these players work together to create a standardisation of data covering all types of assets, Luxembourg would gain enormously in its international positioning.
How can IQ-EQ help?
Headquartered in Luxembourg, IQ-EQ has a long track record of working in the data landscape and has developed a reporting platform, IQ-EQ Cosmos, to support the automation of data collection. For more information on how IQ-EQ Luxembourg can help family offices gain access to consolidated, real-time data reporting across multiple asset classes, please feel free to contact me.