Technology is always changing, and subsequently changing the way we work and interact with our customers. It can be a challenge to keep pace with financial technology, and wealth management firms can gain some beneficial insights by listening to this podcast. Join Mark Wickersham from AgilLink as he discusses the challenges of implementation and the capabilities of integrated financial services with Rick Higgins, founder and CEO of Risclarity, and Carl Knecht, president and CTO of Risclarity.   

Rick Higgins is founder and CEO of Risclarity, a financial technology company specializing in providing reporting technology and systems integration to wealth management firms and family offices. In this role, Rick focuses on innovation and supporting reporting technology for family offices and ultra-high-net-worth wealth managers.

Carl Knecht is President and CTO at Risclarity. In this role, Carl uses his expertise to guide wealth managers and family offices through systems integration implementation, consolidated reporting, and financial technology development.

Mark Wickersham is VP of Strategy, Marketing, and Business Development at AgilLink.

This synopsis is of a podcast conversation between Mark Wickersham, Rick Higgins, and Carl Knecht.

Note that the conversation has been edited for length and clarity.

WHAT ARE YOUR PREDICTIONS IN TERMS OF TECHNOLOGY TRENDS FOR THE FAMILY OFFICE?

Risclarity is at the center of technology change for family offices.  Carl Knecht responds to this question by saying, “Firms are assessing the technology that they have in place, and they’re looking for new ways to take advantage of interactivity with other platforms with features that they really need. Finding the best solution is not a one-size-fits-all situation anymore, as you can integrate different specialized solutions that work together. When we sit down with a new client, we assess the platform they have in place, uncover gaps, and suggest solutions to fill the gaps.”

Rick Higgins adds the following: “One thing we're seeing is an emphasis around security, workflow, and process. We're seeing a lot more publicized security breaches, and firms are paying attention, and they're incorporating security into their infrastructure, not bolting it onto the external environment. With more people working remotely, it's exacerbated security issues. Working remotely has also impacted workflows, going from the security inherent in the physical environment, like controls around manually writing checks, to electronic security needed to print or transfer funds remotely. Accounting systems have to have workflows where everybody can do their job effectively and securely, irrespective of location — remote or in the office.”

Mark agrees, and adds, “We are dealing with a change from an in-person workflow to a digitized workflow, and I think one of the big advantages of AgilLink is that the workflow is built into the accounting system, as well as the treasury management platform. This means that you have to go through that workflow as well and get the proper approvals before the release of funds, versus paper-based systems where the workflows may not be as secure.”

WHAT ARE APIs, AND WHY ARE THEY SO IMPORTANT?

Knecht responds, “The Application Programming Interface (API), is really just the way that computer programs can talk to each other. Before APIs, program integration was primarily done by uploading and downloading files from one system to the next. APIs enable you to build your own workflows, allowing you to take advantage of software packages which integrate your processes for efficiency and data security.”

Carl Knecht continues, “APIs enable data to be visible in the general ledger for accounting, and the same data is visible in the CRM for your client service staff. They can see a snapshot of their client in one place, in a familiar structure that they know outside of the general ledger. And the general ledger folks can look at investment information without having to go into Addepar or their data warehouse. APIs allow you to work in the environment that you're used to while integrating data that exists in other systems as well.”

Higgins adds, “APIs, in and of themselves, are really not that interesting. It's how you leverage them and how you use them that provides value. The ability to get data in and out is important, but using the data to build the workflow, including process steps and associated safeguards, is even more important. A lot of the firms are publishing their APIs, but how you integrate the data and what you do with it is kind of up to you.”

WHAT ARE SOME OF THE CHALLENGES OF CONSOLIDATING NET WORTH REPORTING INTO A 360-DEGREE VIEW OF WEALTH?

Knecht comments, “First off, we have to recognize that the information is scattered. It's in your portfolio reporting, your portfolio accounting, it's with the custodian, it's in your general ledger, and then there's cash information from the banks. In the recent past, this data had to be consolidated manually, but now, with a product like AgilLink, we can instantly bring together data from multiple locations, from the general ledger, from the custodian, or the accounting system, into a report, irrespective of the location of the data.” 

Higgins adds, “I think the second challenge, particularly in the family office space or private wealth space, is the uniqueness of each individual client and their assets and investments. If you're running stocks and bonds, mutual funds and cash, it's pretty straightforward. When you start layering in private real estate and private equity and hedge funds and collections, it becomes complex. Customization or personalization is needed to adapt, configure, and present the data according to the preference of the client.”

Mark adds, “I think personalization is key, because there are challenges around consolidated net worth reporting. You have to look on the investment side, the marketable securities and non-marketable securities, alternative investments, and the hard assets, and these have very different reporting cycles. Some of the data is unstructured, some is structured, and the ability to pull that consolidated picture together can be tough without the right technology.”

WHY IS IT SO HARD TO TRANSLATE INVESTMENT DATA INTO USABLE FINANCIAL ACCOUNTING DATA?

Higgins says, “Portfolio accounting uses a single-entry system, while general ledgers are double-entry systems. Accountants need the ledger, the double entry, and the debits and the credits to balance out, and you don't get that from a portfolio accounting system. A lot of people feel that taking transactional data out of the portfolio accounting system and just cramming it into the GL system is the answer. We believe that you need the right tool for the job.”

Carl Knecht adds, “That's why we've developed InvestLink, because it takes the best of both worlds in that we're translating the portfolio, the positions, and transactions into those debits and credits that balance. We make sure that the cash is correct, we make sure that the categorization is correct, that the information is all flowing through. It's a unique system taking portions of the positions, your cost, and portions of transactions, like income, and translating those into a general ledger that balances, as opposed to just taking transactions and trying to dump them into a GL and leaving it for the accountant to figure out.”

WHAT ARE THE CHALLENGES OF DATA AGGREGATION?

Knecht says, “In banking, you have similar systems, like SWIFT systems and things for transferring assets or transferring cash and money. But in the custodial and investment arena, there's no consistency across platforms, or data. It's difficult to aggregate information, because every custodian looks and feels different. They all have different ways of gathering information, and different ways of legally accessing information. The client has to authorize access to aggregate that information, but every custodian, every bank, has a different authorization process. Once we have access, then we need to build systems for gathering that information, and there's still a human element to connecting with the advisor or the custodian to make that happen. The data comes from different systems, and it all looks different. What one bank might call an income, another one might call interest. So we have to work with the data to make it into a consistent model for importing into the GL.”

He continues, “While it can be a messy process of gathering the data, once we pull it together and make it all look uniform using InvestLink, an opportunity is presented for the family office to look at their process, and consider ways of leveraging this new information stream. We work a lot with the client to streamline their process for data acquisition and booking information into the GL so that it's done the same way every single time for every single client. As you grow, and add staff, you gain efficiency because you consistently have the same process, and the systems are running the process, making it easier to train new staff.”

Rick Higgins adds, “With data aggregation, the authorization process is hard because there are legal statutes, like the Gramm-Leach-Bliley Act, and clients have to opt-in, and they have the right to opt out in terms of data sharing. The second component of it is around bank data. A SWIFT file is standardized across the banking system, but the files that you get from various custodians can be completely different formats. So there is the challenge of aggregating that data, and then there is normalization that needs to take place across literally hundreds of custodians. While that is a challenge, we have exceptional technology in place to be able to do that, accurately and securely.”

HOW CAN FIRMS ADAPT TO PROCESS CHANGES ARISING FROM NEW TECHNOLOGY IMPLEMENTATIONS?

Higgins offers, “I think it ultimately comes down to the human element and understanding how somebody works, how they're used to working, how their mind wraps around the data, and the process that they're using. Just because there's new, modern technology doesn't mean that it's going to make their lives easier. A good example of that, and we've witnessed this, is the way that people enter data into a system. We tried to replace keyboard entry with mouse clicks and checkboxes, but it broke the flow of an established process, and people fought it. So we revamped the webpage to mirror what they were doing with the tabs and the enter button to replicate their process, and they never had to go back to the mouse.”

He continues, “That's one area where people struggle with technology. And then, I think the second piece is spending adequate time training them so that if there is a paradigm shift in the way that they're thinking, we offer an alternative, and find a better way to do what they're doing using what they know and what they're comfortable with. It's one thing to look at an existing technology and go through the checklist of what it does, and then go to the new technology and make sure that we check all those boxes. But you can’t miss what the real workflow is. You have to give them the same tools or better tools, or a better way of doing things, and understanding the workflow is the key.”

WHAT ADVICE CAN YOU OFFER TO FAMILY OFFICES WHO ARE CONSIDERING BILL PAY SERVICE?

Carl Knecht says, “Number one, build security in, because you're moving a lot of cash around, so security is paramount — but remember you need to build a process that is efficient for your firm. And if you're paying bills for clients across 40 or 50 different banks, you're not going to be efficient, so you have to separate client service from bill pay, because bill pay is a process, not a client-focused solution. It's up to the family office to make it efficient, cost-effective, repeatable, and easy. The interface with the bank which AgilLink has makes bill pay super-efficient. If the process is not efficient, or is not scalable, it becomes a drag on the company.”

Rick Higgins adds, “We’ve seen some mistakes made, like embezzlement and fraud, because there wasn't a strong separation of duties, and there wasn't an enforced workflow with proper controls in place.  Because even good people, given access in a bad situation, can do bad things. Systems like Datafaction have controls in place and a robust process to prevent people from committing financial shenanigans.”

Mark Wickersham summarizes, “When we talk about security, and we talk about fraud, I think a lot of times, firms are thinking about protecting themselves from outside threats, but a fair number of cases that we do see are internal fraud. There are firms that use multiple software packages, without a robust approval workflow, who get into trouble and call us for help. To your point [Rick], if they use Datafaction (now AgilLink), it can't happen, because you have an approval workflow restricting release of any funds.”

Then, Mark Wickersham says, “A common mistake which impacts scalability is when a firm will offer the service to a handful of clients (we call it accidental bill payment), and then more clients want it, but the infrastructure and process was not designed to scale to multiple clients. You need an accounting system that integrates with the bill payment system, and the workflow to be able to do it efficiently. Datafaction and AgilLink's value proposition is unique in that we can add scale, yet at the same time, maintain controls in place. Typically, when you add more control to a process, you tend to slow down that process, but with tight integration of key components, we're able to add scale safely and securely.”

ABOUT RISCLARITY

Risclarity is a financial technology company with decades of combined experience in family wealth accounting and consolidated performance reporting. Risclarity specializes in developing personalized solutions to address potential gaps or limitations in existing reporting systems. In 2010, Risclarity began with the mission to solve reporting technology for family offices. Today we’ve expanded our technology to serve complex, ultra-high-net-worth wealth management firms. Thanks to partnerships with best-of-breed technology companies, we’ve expanded to additional reporting, integration between general ledger and portfolio accounting, integration for alternative investments, and more. We take a dynamic approach to simplify complexity so our clients can scale efficiently.

DISCLAIMER

_{This article is for general information and education only. It is provided as a courtesy to the clients and friends of AgilLink. AgilLink does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of AgilLink. Please cite source when quoting.}

_{This podcast is for general information and education only and is provided as a courtesy to the clients and friends of AgilLink. It is compiled from data and sources believed to be reliable, however AgilLink does not warrant that it is accurate or complete. Opinions expressed and estimates given are those of the speaker as of the date of the podcast with no obligation to update or notify of inaccuracy or change.}

_{City National Bank is a subsidiary of Royal Bank of Canada. Deposit products and services are provided by City National Bank.}

_{Risclarity is an independent company and is not associated with AgilLink, CIty National Bank, or Royal Bank of Canada.}