Industry Updates

In family office portfolios, digital assets are far from being a focus. Only 17% of respondents to Citi’s 2024 Global Family Office Survey had made allocations to the asset class and 10% said they were doing research or seeking advice before investing. A full 73% said they had not made investments in cryptocurrencies and were not planning to.

Even so, digital assets and Web3 – a vision for a decentralised internet where applications and services are built on blockchain technology – are likely on many family offices’ radar:

• In the European Family Office Report 2023, intelligence provider Campden Wealth found that a full 93% of family offices investing in digital assets believed that Web3 and blockchain technologies in commercial applications had the potential to create substantial financial value.
• Financial service provider Ocorian’s 2024 research highlighted that two-thirds of family officers saw younger generations’ interest in digital assets as an important intergenerational shift.

Heading into 2025, family officers expecting questions about this emerging space will therefore be wise to review the basic types of assets within it and the big picture of Web3.

Key Types of Digital Assets

Cryptocurrencies are a catch-all term for:

• Crypto coins: Digital assets native to specific blockchains, primarily used as a medium of exchange or store of value. Bitcoin (BTC) and Ethereum (ETH) are well-known examples.
• Crypto tokens: Digital assets that provide governance rights, utility, or access within decentralized networks or applications. Many crypto tokens are created using the Ethereum blockchain.
• Stablecoins: A subset of crypto tokens pegged to traditional government-regulated currencies (referred to as “fiat currencies” by cryptocurrency enthusiasts). Tether USD (USDT) is a well-recognized example.
• Central bank digital currencies (CBDCs): Digital currencies issued and regulated by a central bank, designed to serve as a digital version of fiat money. For instance, the European Central Bank is exploring the launch of a digital euro.

Non-fungible tokens (NFTs) are unique digital assets representing ownership of a specific item or content.

Tokenized real world assets (RWAs) are digital assets representing non-digital assets like real estate or physical gold.

Security tokens are digital assets representing ownership of traditional financial securities.

The Promise of Web3

Family office professionals are well aware of the importance of securing ownership of assets and protecting privacy. For example, they often conduct careful due diligence on custodians and strive to maintain confidentiality when handling the family’s financial affairs.

The promise of Web3 is to bring this paradigm of respecting property rights and privacy to the entire internet. Unlike the currently centralised web – known as Web2 –  where data and control are concentrated in the hands of a few large corporations, Web3 aims to distribute power and control among users.

Venture capitalist Chris Dixon has defined Web3 as the “Read-Write-Own Web” in comparison to the Web1 of the 1990s and the Web2 that virtually everyone is familiar with today. The following table provides more context around this comparison:

Why Web3 Matters

Today, investments in Web3 technologies are largely the domain of crypto-focused venture capitalists. Such technologies:

• Enable the management of DAOs, short for decentralised autonomous organisations, which are communities governed by smart contracts (self-executing contracts with terms directly written into code) instead of centralised authorities.
• Provide the decentralised infrastructure necessary for creating interoperable digital experiences (involving, for example, augmented reality and virtual avatars) in the collective online shared space popularly known as the Metaverse.
• Make it possible for electronic gamers to truly own – independently of a game developer –  their in-game assets such as characters, items, and virtual land in the form of NFTs that can be traded on third-party marketplaces.

Q2 2024 research from Galaxy, a provider of digital asset investment services and solutions, found that crypto venture capitalists allocated the largest share (24%) of their total capital to companies and projects within the “Web3/NFT/DAO/Metaverse/Gaming” category.

Whether or not their investment mandates allow for backing crypto venture capitalists, family offices should note this interest from venture capitalists. If the promise of Web3 is delivered – regardless of who delivers it and how –  then worldwide adoption of digital assets as mediums of exchange will inevitably rise.

Such a rise in adoption would have significant implications for digital asset markets in general. Today, many analysts view digital assets rather as stores of value and speculative tools as opposed to everyday forms of payment. As is often observed, it is still uncommon to pay for coffee with Bitcoin.

In a Web3 future, however, digital assets will be the mechanisms by which value is exchanged for an increasing array of commodities, products, and services – some of which may not have yet to be conceptualised or widely recognised as such.

For example, many users of Web2 social media platforms remain oblivious to (or at least uninterested in) the fact that their browsing data is being monetised by someone else. If a Web3 social media platform gains mainstream traction, though, its users will likely be able to retain ownership of their browsing data and be compensated for sharing it – and a digital asset will be the mechanism of compensation.

Investing in Digital Assets and Web3

The majority (64%) of respondents to Citi’s 2024 Global Family Office Survey said they are undecided about how they want to invest in digital assets. 24% expressed interest in directly holding cryptocurrencies like BTC and ETH, while 18% said they preferred investing in crypto-linked investment funds like exchange traded funds (ETFs) or private funds. There was noticeably less interest in other forms of digital assets like tokenized securities, stablecoins, and NFTs.

Whether a family office is deciding how to invest in digital assets or refining its existing approach, it should keep in mind that:

• Custody is a critical consideration when directly holding digital assets, more so than with traditional assets. While self-custody is an option, it may not be ideal for managing significant wealth. Institutions like Coinbase, which is the custodian for the majority of the spot Bitcoin exchange-traded funds (ETFs) launched in 2024, offer custodial services.
• Crypto-focused funds of funds provide a potential entry point into digital assets for family offices looking to explore this evolving space.

Takeaway

In 2025, digital assets are expected to be in the spotlight like never before. While it may not be time for every family office to invest in this relatively novel asset class, it is time to explore it – especially as the Great Wealth Transfer continues to unfold and younger, digital-native heirs become responsible for stewarding their families’ legacies.

Cryptocurrencies and funds holdings – including those in cryptocurrency ETFs – are among the many types of bankable and non-bankable assets that family offices and wealth owners can monitor and analyse effortlessly.

01 Number of Millionaires at All-Time High

According to Capgemini’s World Wealth Report 2024, the global number of individuals with assets worth at least $1 million (excluding primary residences) reached a record 22.6 million in 2023, up 5.1% from 2022. Their total wealth also hit an all-time high, rising 4.7% to $86.8 trillion – the highest figure since the report’s inception in 1997.

Capgemini attributed this record-setting growth to increased savings rates, strong stock market performance, and a lower – although still relatively high – average annual inflation rate of 5.9%.

Declining real estate prices, among other factors, limited wealth growth in 2023. However, the primary driver of the rise in millionaires’ wealth was strong stock market performance, which rebounded sharply after a weak 2022.

Capgemini highlighted the robust performance of major stock indexes in 2023:

• NASDAQ (United States): +43%
• S&P 500 (United States): +24%
• DAX (Germany): +20%
• CAC 40 (France): +16%

Many of these millionaires are expected to join the ranks of ultra-high-net-worth individuals (UHNWIs), whose global population rose to 626,619 in 2023, an increase of 4.2% from 2022, according to The Wealth Report 2024 by Knight Frank.

The real estate firm found that the number of UHNWIs in North America saw the largest increase from 2022 to 2023 (+7.2%), followed by the Middle East (+6.2%) and Africa (+3.8%). Latin America was the only region to experience a decline in UHNWIs (-3.6%).

Turkey led globally in the growth of new UHNWIs, with a 9.7% increase, followed by the United States (+7.9%), India (+6.1%), South Korea (+5.6%), and Switzerland (+5.2%). Knight Frank predicts a 28.1% global increase in the UHNWI population by 2028.

The United States remains the country with the largest millionaire population, hosting 7.43 million in 2023. Japan and Germany ranked second and third, with 3.78 million and 1.65 million millionaires, respectively.

Global Wealth on the Rise

The UBS Global Wealth Report 2024 suggests that:

• Wealth inequality is not as pervasive as it may seem. In Switzerland, for example, wealth inequality in 2023 was down 4.6% vs 2008. In Germany, it was down 5.4% over the same period.
• Opportunities for economic advancement remain robust worldwide, with one in three people moving up to the next rung of the wealth ladder within a decade. The authors noted that wealth inequality tends to rise in developing countries but fall in industrialised countries.

A 4.2% rise in global wealth (measured in US dollars vs. 2022) added to the positive picture. Year-on-year wealth growth was most pronounced in the Middle East, Europe, and Africa, where UBS measured a rise of 4.8%. Wealth growth across the Americas stood at an impressive average of 3.6%.

The UBS economists gave a nuanced description of wealth growth in:

• Asia, where it was up 4.4% year-on-year but was accompanied by a debt burden that has risen 192% since 2008 – no less than 20 times as much as in Europe, the Middle East, and Africa over the same period.
• Switzerland, where it rose 3.4% year-on-year when measured in US dollars. Measured in Swiss francs, however, Swiss prosperity contracted by nearly 6%. The Swiss franc appreciated sharply towards the end of 2023 and made investments denominated in other currencies worth fewer Swiss francs.
• Turkey, which led all countries with an average rise of over 157% year-on-year measured in the collapsed local currency. High inflation led many Turks to invest their savings in capital markets and hard asset classes like real estate whose prices rose sharply. The result was a dramatic rise in nominal prosperity.
• Europe, where strikingly different wealth trends have emerged since the 2008 financial crisis. While people in Scandinavia and Central Europe are getting richer, those in Southern Europe are falling behind. Italy, Spain, and Greece are, along with Japan, the only countries where wealth measured in US dollars has fallen since 2010.

Switzerland, where average assets per capita are worth US $709,612, holds the top position on the national prosperity scale, outpacing Luxembourg (US $607,524 per capita) and Hong Kong (US$ 582,000 per capita). In the US, technology stock market gains have been a key driver behind the rise of American wealth per capita to US $564,862.

Takeaway

These 2024 reports paint an optimistic picture of rising prosperity, driven by robust stock market performance and increasing numbers of millionaires and UHWNIs.

01 What a family office is and does

A family office is a private entity dedicated to managing the financial affairs of one wealthy family (a single family office) or several (a multi-family office). Unlike banks or third-party asset managers, family offices operate independently and answer directly to wealth owners.

Historically, family offices were created to look after the wealth of ultra-high-net-worth families. But the modern-day family office often does far more, discretely taking care of anything for which wealth owners do not have capacity, knowledge, skills, or simply interest. Securities portfolios, real estate, yachts and art collections, inheritances, mergers and acquisitions, tax planning, and mediation between different generations of family members are just a few examples.

Most family offices prioritise the preservation of assets, optimising the transfer of wealth to future generations. According to the findings of a survey of family offices by private investment funds Terra Nex and Middle East Best Select, family offices emphasise pursuing carefully selected investment opportunities: Almost two thirds of the players surveyed favoured direct investments or individual investments. Many family officers have entrepreneurial backgrounds and take a creative, hands-on approach to their work.

02 Why to create a family office

Entrepreneurial families face increasingly complex business, legal, and tax challenges when it comes to building and structuring wealth to benefit family members for generations to come. They often value independent advice from professionals acting exclusively in the family’s interests.

A family office can be an ideal source of such advice, helping family members address their unique challenges with a level of personalisation unavailable from other types of financial service providers when it comes to preserving, growing, and transferring wealth. In addition, a family office can be:

• A central link within a family governance structure. It can be the first point of contact for questions relating to the strategic direction of the family’s business and succession planning strategies — or when external mediation is needed in family disputes.
• A “gatekeeper” for family members, helping to free up their time and meet their needs for security and discretion.

03 Envisioning and setting up a family office

Like so many things in life, starting with the end in mind is essential for successfully launching a family office. When envisioning a family office, key questions to ask yourself are:

• What services does my family most need?
• Should the family office itself actively manage assets? If so, assets in which classes?
• Should the family office have an influence on the family business? Or should the family office operate independently of the business?
• Will the family office serve other families? If starting out as a single family office, is there a possibility that more families will be served in the future?

Once you’ve answered these questions and formed an initial vision of your family office, it is time to start taking your first steps towards setting it up. Here are some recommendations to guide you in doing so:

• Set a limited number of priorities. The point of having a family office is to receive better, more personalised services than are available elsewhere. It is unrealistic, however, to be better at anything and everything from a “standing start.” One of the most common reasons family offices fail is lack of focus. Choose the most important core competencies to build initially before thinking bigger.
• Ensure adequate reporting. Family office decision-making is only as good as the data and metrics it relies on. Reporting should encompass all assets in the portfolio, including nonbankable ones like properties and private equity. A sophisticated digital wealth platform like Altoo’s can provide advanced monitoring and reporting capabilities with minimal manual effort, as information from assets across the family’s portfolio flows into the platform automatically for analysis and visualization.
• Focus on two to four asset classes. Initially, direct family officers to manage the types of assets that are most important to your family. Here, management does not necessarily involve hands-on, day-to-day efforts. Family officers may, for example, delegate responsibilities to specialists and closely monitor their results.
• Hire for the right expertise. Family office teams should excel in both the development and implementation of investment strategies. Aim to bring in expertise that covers the selection and negotiation of asset management mandates, particularly with respect to the negotiation of fees. The team should also be able to ensure legally compliant tax optimisation of investments. Switzerland is often considered the true European hub for family offices, for which there is a mature market for such services and the industry is primed for future growth. Famous wealth owners from not only Switzerland but also Germany, Italy, Greece, and France have set up their own family offices in Switzerland, often hiring portfolio managers with banking experience who prefer working in a smaller team.
• Hire for the right ethics. There is no room for conflicts of interest in a family office. Above all, family officers should display discretion and loyalty in handling your financial affairs.

Takeaway

Establishing a family office is a sophisticated undertaking that demands strategic vision and an unwavering commitment to your family’s unique needs and aspirations. By tailoring its services to preserve, grow, and transfer your wealth, a well-structured family office becomes far more than a financial entity — it evolves into a cornerstone of your legacy, safeguarding it for generations.

Of all a UHNWI’s assets, health will always be the most valuable. The day-to-day responsibilities of overseeing a business empire or complex wealth can often put this all-important asset at risk. While UHNWIs can make significant investments into health solutions, ensuring that any given solution is truly the best money can buy is often a challenge in itself.

01 The burden of responsibility

For UHNWIs, financial decisions often carry significant consequences. Unfortunately, high levels of stress typically accompany high levels of wealth. Heart disease, anxiety, and sleep disorders are all too common among UHNWIs.

Many UHNWIs are known to take relaxation seriously by carving out time for physical exercise and mindfulness practices from their busy schedules. For instance:

• Media mogul and philanthropist Oprah Winfrey advocates yoga and meditation as ways to manage the pressures of her high-profile life.
• Jack Dorsey, the former CEO of Twitter and co-founder of Block, is known for rising early to meditate, exercise, and drink a “wake me up” cocktail.”

02 The labyrinth of complex medical insurance

Among virtually all types of risks, medical ones are perhaps the most unpredictable and challenging to insure against. Unlike life expectancy, which can be statistically modelled, an individual’s specific medical future is highly unpredictable. Treatments may vary in success, and chronic conditions might require ongoing management. This uncertainty poses a challenge in predicting the complete scope of potential medical costs. This challenge is reflected in the increasing complexity (and rising premiums) of medical policies offered by insurance companies.

UHNWIs can afford these premiums, but making claims often entails unnecessary administrative hassle when the full costs of care can be self-insured, that is to say covered out-of-pocket when necessary.

Famous UHNWIs have generally avoided disclosing their approaches to medical insurance, most likely due to the sensitive nature of personal medical information. Nevertheless, medical self-insurance is widely recognized among well-resourced enterprises – including those led by the likes of Jeff Bezos, Warren Buffet, and Jamie Dimon – as a prudent financial decision.

For example, in 2018, Amazon, Berkshire Hathaway, and JP Morgan, formed an alliance to take more responsibility for covering the medical costs of their respective workforces. The alliance disbanded in 2021 because it was unnecessary; the companies preferred taking more individualistic approaches tailored to their specific needs. In 2023, the Employee Benefit Research Institute reported that US companies have been self-insuring the medical risks of more than half of all the employees in the country since 2010.  Also, it is worth noting that Warren Buffett is known to be a proponent of self-insurance in general.

03 When “best care” becomes a bewildering maze

Virtually all medical treatments are accessible to UHNWIs. However, this abundance of options can be overwhelming, leading to questions about the optimal course of action.

Prominent UHNWIs’ backing of cutting-edge healthcare initiatives suggest that data holds the key to answering these questions. For example:

• Patrick Soon-Shiong, the billionaire biotechnology entrepreneur, is a major donor to the Chan Zuckerberg Initiative, co-founded by Mark Zuckerberg and Priscilla Chan. The Initiative aims to map all human cell types at a single-cell level with advanced data-driven techniques. The data will be used to identify new drug targets and personalise treatment strategies based on the compositions of individuals’ cells.
• Marc Benioff, CEO of Salesforce, has used his company’s venture capital arm, Salesforce Ventures, to invest in healthcare startups leveraging data for treatment recommendations. One notable example is Paige AI, which employs artificial intelligence to analyse medical images and identify potential cancer cases.

Mastering wealth data to reduce stress and streamline medical self-insurance decisions

For UHNWIs with complex wealth, having a comprehensive, clear, and current overview of their portfolios can go a long way towards ensuring psychological health and easing medical self-insurance decisions. Just as in cutting-edge medicine, good data availability and analytics are key to success.

These days, digital technology is integral to almost every aspect of daily life, from communication to booking travel and conducting business. For UHNWIs, however, everyday life often involves decisions and needs that mass-market technologies simply cannot address. From managing large, complex financial portfolios to curating exclusive lifestyle experiences, UHNWIs require tailored solutions that offer enhanced personalisation, heightened security, and deep insights. Fortunately, a range of specialised digital solutions exists to meet these unique demands.

Below, we explore five types of these tools along with a few specific examples of each one to provide a taste of the possibilities.

01 Luxury lifestyle platforms

Managing the lifestyles of UHNWIs involves much more than just making reservations or purchasing high-end products; it’s about accessing exclusive experiences and services that are often out of reach for the general public. Unlike mass-market platforms that cater to broad audiences, luxury lifestyle platforms for UHNWIs provide bespoke services tailored to their distinct needs—such as booking or purchasing a private island.

Examples of luxury lifestyle platforms include:

• Quintessentially, a provider of white-glove concierge services to its members.
• Myria, which calls itself “a private marketplace that offers the goods, services, and experiences you can’t Google.”
• Net-a-Porter and Mr Porter, which offer curated luxury goods.

02 Platforms for accessing exclusive assets and investment opportunities

UHNWIs often seek investment opportunities and assets that are not accessible to the general public, such as rare art, private equity, and luxury real estate. Online platforms that help UHNWIs source such opportunities include:

• Billionaire Network, a listing service for big-ticket properties, collectibles, and more.
• Artnet and Artsy, which specialise in the buying and selling of fine art.
• iCapital, which connects UHNWIs and their teams with alternative investment opportunities.
• MansionGlobal, a part of the Barron’s Group media business that provides luxury property listings.

03 Philanthropic and impact investment decision support

For many UHNWIs, philanthropy and impact investing are crucial aspects of their legacy and values. Unlike standard investment platforms, which focus primarily on financial returns, these tools help UHNWIs align their wealth with their personal values, providing insights and tools to maximise the impact of their philanthropic efforts and sustainable investments.

• S&P Global Sustainable1 is one example of a digital service providing investors with environmental, social, and governance (ESG) scoring data on publicly traded companies.
• ImpactAssets is a platform that helps UHNWIs invest in initiatives that generate both financial returns and social or environmental impact.

04 Secure digital communications

For UHNWIs, privacy is paramount, particularly when it comes to communication. Given the highly technical nature of the market for secure communication tools – in which discretion is prized – judging the popularity of any one such solution among UHNWIs is challenging.

It is fair to say, however, that UHNWIs avoid using free-to-use, mass-market digital communications tools when communicating sensitive information. While many free-to-use solutions have (and are often required by law to have) advanced security features, they often raise doubts as to whether user data is being shared in one way or another to finance the providers’ operations.

A notable example of a secure digital communications provider that appears to operate entirely on licensing fees is Swiss-based Threema, whose chat application is purported to be the only one allowed for communication among members of the Swiss Army. While many providers of such tools have “freemium” pricing models (where basic versions of applications are free to use) or claim to be financed entirely by donations and grants, all Threema users must pay a licensing fee.

05 Reporting and monitoring platforms for complex investment portfolios

Obviously, the size of their investment portfolios distinguish UHNWIs from lower-net-worth individuals. A less obvious – bust just as important – distinguishing factor is the greater degree of diversification in UHNWIs’ investment portfolios.

Both UHNWIs and smaller investors are likely to hold equities, bonds, cash, and real estate. But UHNWIs typically hold more of each of these assets as well as a wide variety of other ones such as one-of-a-kind collectibles and private equity. Getting a unified view of all their holdings and tracking the current value of each one often present significant challenges to UHNWIs.

One solution to these challenges is for UHNWIs or their teams to spend hours or even days every month with spreadsheets to manually catalogue valuable items and analyse data from the various institutions where bankable assets are held.

A better solution is to rely on a digital wealth platform to automatically aggregate this financial data through ultra-secure connections and visualise it in easy-to-understand dashboards.

The example of such a tool we know best is ours: the Altoo Wealth Platform. Among the most advanced solutions of its type, the platform:

• Makes it easy to keep track of properties, collectibles, and virtually any other valuable item in a UHNWI’s portfolio. Wealth owners can view their holdings grouped by asset class and drill down into each asset for detailed performance information.
• Offers 100% Swiss-hosted file storage and digital messaging capabilities with security on par with the most advanced such solutions on the market. Clients need not rely on third parties for such services when handling their financial lives and can streamline communications and workflows involving particular holdings. All appropriate stakeholders can be securely looped into conversations and have access to relevant documentation (such as insurance policies or mortgage contracts) directly within the platform.

Takeaway

All of the types of digital solutions outlined above share a common purpose of improving UHNWIs’ lives, whether it be by helping them enjoy unique experiences, source and evaluate opportunities to grow their wealth and legacies, maintain digital security, or stay on track towards achieving their financial goals.

Open banking is a practice by which two or more financial service providers can access each other’s data on a shared client through application programming interfaces (APIs).

By promoting competition, innovation, and customer-centric services, open banking gives wealth owners greater control over their financial data and choices.

Open banking also brings rewards to financial service providers like family offices, which have many moving parts and diverse requirements of their own. Among the key benefits of open banking for FOs are:

01 Integration of Multi-Source Data

A fragmented, inaccurate financial picture often prevents family offices from providing the expert insights and tailored service that clients expect and deserve. One of FO’s biggest challenges is integrating data from multiple banking sources. If done manually, this process can be tedious, often seems impossible, and requires advisors to spend less time serving clients. Open banking solutions automate this process to provide family officers and their clients with a more holistic view of wealth.

02 Visibility and Transparency

Open banking provides clients with greater visibility of their finances, enabling them to make more informed decisions in partnership with the FO. Wealth managers can see their clients’ overall financial situation, including where funds are flowing and potential opportunities for savings and portfolio adjustments.

03 Security and Control

Open banking enables greater control over customers’ financial data. With access to it through APIs with cutting-edge security features, FOs can innovate and improve services. Both banks and customers can be confident that they are taking no unnecessary risks, as FOs and their clients jointly determine who may access data on financial flows.

04 Efficiency and Cost Savings

Manually entering data often involves a significant possibility of human error. And even if the data is entered correctly, it may be out of date – especially when markets are volatile. A FO relying on family members to provide end-of-month or end-of-quarter statements, for example, often risks losing sight of current portfolio valuations. By automating tasks such as data entry and reconciliation, open banking solutions help not only improve accuracy but also streamline family officers’ workflows. Additionally, FOs can take advantage of an expanding range of open banking features and functionalities like investment monitoring notifications.

05 Tailored Services and Advanced Decision-Making Capabilities

Fundamentally, open banking supports an open financial ecosystem. Wealth owners can easily access a wide range of service providers. In turn, these service providers can access their clients’ relevant financial information in one place to make better-informed asset allocation decisions with the help of new tools and analytical capabilities for identifying opportunities and trends.

Open banking solutions are a game-changer for many family offices, who can use them to gain a holistic view of their clients’ finances and make more informed decisions accordingly.

Many industry experts and consulting firms regard open banking as a development that is likely to fundamentally change the value-creation models of banks and other players in the financial sector. The fact, however, is that much is still unclear in this area; the information from all corners is still being brought together. In the following text, we will try to clear up the most important facts and features of Open Banking.

What is Open Banking?

Open banking can also be referred to as an open-finance business model. At its core, it is about enabling new digital customer innovations. With Open Banking, the data, functions, and services of banks are networked in cooperation with third-party providers. In this way, new customer solutions are created or existing solutions are expanded.

The process is as follows: the customer opens his banking data to a third party, a financial service. It means that his or her account and transaction data will be made available to FinTechs or WealthTechs. Thus, he or she has access to a wider range of products and services. An example of Open Banking are platforms that aggregate financial data from different banking relationships. This enables a complete asset overview (also called multibanking).

Open Banking and Wealth Management

Asset managers and custody customers can access the data reference using the so-called OpenWealth API. The API is an Application Programming Interface through which two or more computer programmes communicate with each other. Simply put, it is a type of software interface, offering a service to other pieces of software. In this way, the wealth manager represents the customer portfolios in a system.

This allows the customer to share his or her data with the wealth. In this way, wealth managers cooperate not only with their clients but also with the banks of their clients. With the application case of external asset managers, banking institutions such for example the Zürcher Kantonalbank provide a foundation stone for Open Banking. Clients can benefit from enhanced service offerings involving different financial services providers, such as banks, FinTechs, and insurance companies. The focus is on data confidentiality and data security, with the necessary technological safeguards.

Benefits for Customers

Open Banking business models contribute to a positive client experience: a wide variety of financial service providers serve the customers. It is therefore clearly in the customers interest to simplify and network this landscape.

Obviously, financial institutions own and store large amounts of data instead of using it to drive innovation. Traditional banks have always been very conservative, since they benefited from the fact that they had exclusive access to their customers’ financial data.

Modern regulations changed this by pushing for the sharing of this precious information in order to promote the development of better products and services. These offerings were designed to help end users instead of acting like an additional obstacle to their real-life needs. In particular, there are the following advantages of Open Banking:

01 Data aggregation enables companies to access and combine customer bank account data, providing tailored support with money management and actionable insights.

02 Open banking enables customers to share their financial data with third-party providers to access a wider range of products and services.

03 It helps clients of financial institutions save money on loans and mortgages.

04 Open Banking improves financial inclusion by providing access to financial services to underserved populations.

05 It helps prevent financial fraud by giving customers more control over their data and who can access it. 

Open Banking at Zürcher Kantonalbank

One of the Swiss banks where open banking and the opening of APIs have been implemented for a long time is the Zürcher Kantonalbank. Approximately six years ago, it was decided within the bank that APIs should be established as a strategic boost within the multichannel management business area. According to the institution’s website, the decision was made within the bank to establish APIs as a strategic enhancement to the multichannel management business area approximately six years ago. An essential component of its API expertise has been the exchange, sharing, and discussion of knowledge and experience regarding the API standards within the bank and the trends in Open Banking.

FinTech and Open Banking

As the IFZ Open Banking Study 2022 done by the Institut für Finanzdienstleistungen Zug (Switzerland) notes, many young companies and FinTechs succeed in offering excellent solutions for specific customer needs. One of the examples is Altoo’s Wealth Platform in the wealth management area.

The banking institutions can offer clients comprehensive asset advice, which includes assets held at other institutions as well as non-bankable assets. In addition, the Altoo software allows the banks to offer Family Office services. The customer can benefit again from the fact that the consultant of his trust knows the overall situation and submits proposals based on this understanding. The bank can, in turn, link the customer via the tool, which has a high level of user-friendliness, and also position itself as a consultant in a new league.

Explanation of the technical terms

Open Banking: also known as “open bank data,” is a banking practice that provides third-party (financial service) open access to consumer banking, transactions, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).

API: Application Programming Interface is any software with a distinct function; it can be thought of as a contract of service between two applications, which defines how the two communicate with each other using requests and responses.

Multibanking: allows users to clearly see accounts from different banks at home and abroad on one user interface, and they can manage their financial transactions from one central platform.

Data Aggregation: the process of compiling typically large amounts of information from a given database and organising it into a more consumable and comprehensive medium

FinTech: abbreviation “financial technology” refers to firms using new technology to compete with traditional financial methods in the delivery of financial services; artificial intelligence (AI), blockchain, cloud computing, and big data are regarded as the “ABCD” (four key areas) of FinTech.

Regardless of their net worth, all international travellers face similar types of risks, such as medical emergencies and crime. For UHNWIs, however, the consequences – and the likelihood, unfortunately – of mishaps can often be relatively greater. Wealthy travellers tend to spend more on ensuring superior travel experiences and have more at stake in case of logistical issues. Moreover, UHNWIs are at a higher risk of being targeted by criminals who know that security can be more challenging to maintain during travels.

The solution, as in so many aspects of life, is proper planning. Here are three essential points for UHNWIs to include on their pre-trip checklist:

01 Adequate insurance and medical care

Unmet expectations for a travel experience are always disappointing. Adequate travel insurance can soften the blow. Whoever is making a UHNWI’s travel arrangements should pay particular attention to ensuring that all planned activities – which might include luxury car hire and concierge services – are covered. Paying for these activities with a credit card that provides automatic coverage for such purchases is often a simple solution.

Also, UHNWIs are accustomed to receiving top-tier medical care which may be more challenging to organise outside of their home countries. UHNWIs will often be covered at all times by the best available medical insurance policies, but the quality of the best available medical care in different countries can vary and is worth investigating prior to departure. Countries frequently mentioned for high-quality medical care include the United States – which also tops global medical insurance provider MSH’s list of the countries with the most expensive medical care – as well as Switzerland, Singapore, and Japan.  Using average physician salary as a proxy for medical care quality, Switzerland beat out the United States and Luxembourg to lead the world.

02 Personal security precautions

Sadly, UHNWIs are prime targets for kidnapping and ransom. This risk is particularly high in certain regions with a history of such activities, where it is not uncommon to find UHNWIs travelling with bodyguards and armoured vehicles.

Prior to a trip, assess the likelihood of such crime and take appropriate precautions. Current kidnapping hotspots, according to a representative of insurance brokerage Miller, include Mexico, Yemen, and India. Before visiting another country, UHNWIs are advised to check governmental advisories like the one published by the Swiss authorities regarding trips to Mexico. Also, specialist consultancies like Control Risks often prepare detailed risk assessments on countries around the world.

Regardless of where a UHNWI is travelling, it is always best practice to exercise discretion. For example, sharing trip plans and current geolocation information on social media almost always creates unnecessary risk. Keeping a low profile is a simple (and free) way to avoid targeting.

03 Cybersecurity precautions

While unwelcome, the financial consequences of having a passport or valuables lost or stolen are usually limited and fairly straightforward to insure against. However, the financial (and potentially reputational) consequences of data security breaches – for example, via a smartphone or laptop physically controlled by a sophisticated attacker – are notoriously complex to assess and recover from.

UHNWIs travelling with devices used to access wealth information should take cybersecurity precautions, such as using a master-password-protected password manager (instead of saving login information in browsers) and enabling at least two-factor authentication to access online financial services. Three-factor authentication is even better, as an attacker would need to have physical control of at least two devices instead of one to gain access.

The Altoo Wealth Platform is an ideal digital travelling companion for UHNWIs wanting to maintain comprehensive visibility of their wealth while on the road. Available via the web and a dedicated mobile app with up to three-factor authentication required for access, the platform consolidates, analyses, and visualises financial data from multiple sources across UHNWIs’ complex portfolios. Thanks to the platform’s messaging capabilities, security-conscious UHNWIs can interact with advisors to make and communicate investment decisions with confidence that their data will not fall into the wrong hands, even if a device does.

Takeaway

Today’s geopolitics are more dynamic than we might wish, but international travel will always be a business necessity and lifestyle priority for many UHNWIs. Every journey comes with risks, but proper planning can minimise these risks. White-glove concierge service providers are available to handle many of the logistical and insurance-related aspects of this planning, but UHNWis will always be responsible for taking proper cybersecurity precautions before and during their trips.

For more details on how UHNWIs can use the Altoo Wealth Platform to cross financial cybersecurity off their lists of travel concerns, please get in touch with us!

To preserve your portfolio, you need to effectively manage risks that fall into three broad categories: general market risks faced by all investors, specific risks unique to your individual portfolio, and risks that your heirs may face. Here’s how to manage these risks:

01 Diversify asset classes to protect against market risks

No one can expect to have every investment decision be a winner. Even Warren Buffett has lost money on some investments, such as the one he made into Paramount Pictures. Holding multiple assets across various classes ensures that your overall portfolio value stays up even if a few holdings underperform.

Diversification is the most widely known asset preservation strategy, and there are several established approaches to executing it. For instance:

• Strategic asset allocation involves maintaining a portfolio consisting of fixed percentages of certain asset classes in line with a long-term investment plan.
• Tactical asset allocation involves dynamically adjusting a portfolio to get more exposure to asset classes predicted to perform well over a shorter time horizon.
• Core-satellite allocation is a mix of the strategic and tactical approaches, with lower-risk core assets selected for longer-term growth and high-risk satellite assets chosen for their shorter-term upside potential.

In 2021, private equity firm KKR identified many UHNWIs seeking outsized returns by taking a “barbell” approach to asset allocation, with the overwhelming majority of their wealth in alternative investments (like private equity and real estate) and cash.

Source: KKR, 2001

According to KKR, UHNWIs’ preference for alternative investments remained strong through 2023, when the firm found family offices – on which Capgemini said 93% of UHNWIs rely on for value-added services – allocating 52% of their portfolios to assets expected to outperform the market.

Source: KKR, 2023

02 Identify and manage risks associated with specific assets

Once you have determined which types of asset classes to hold in line with a diversification strategy, decisions to hold specific assets often introduce risks that require case-by-case analysis and management. For example:

• Real estate holdings generally have similar characteristics but no two properties are exactly the same. Adequately insuring each property requires an accurate understanding of its age, condition, market value, etc. Some UHNWIs, like Warren Buffett (as suggested by his former business partner Charlie Munger), choose to self-insure their properties. Doing so involves having sufficient financial resources to cover potential losses without relying on an insurance company.
• Currency exchange rate fluctuations can impact the performance of shares in any given company. Hedging against such fluctuations with forwards or option contracts can help mitigate this risk.
• The relative performance of a longer-maturity bond will be particularly hurt by rising interest rates. Holding a mix of bonds with a variety of maturities can protect against this risk.

03 Envision and plan for the preservation of your wealth after it comes into others’ hands

Death or disability are not pleasant topics to consider, but contingency planning is essential to have peace of mind that your wealth will be preserved regardless of whether or not you are in charge of it. While this planning will be highly individualised, as a rule of thumb you should ensure that you have created and regularly review:

• Your will and estate plan.
• A durable power of attorney granting at least one person of trust the authority to manage your financial affairs if you become incapacitated.

Also, note that your wealth is at perhaps its greatest risk of being dissipated when it is no longer under your control. Inheritance taxes and heirs not following the first two asset preservation recommendations outlined above can significantly erode your holdings. To minimise the potential downsides of such unwelcome scenarios, many UHNWIs pursue long-term preservation strategies hinging on:

• The use of trusts in estate planning. Trusts can take many forms, with some able to shield wealth from inheritance or wealth transfer taxes and set out guidelines for distributions and investments to preserve wealth across multiple generations.
• Fostering communication and responsible stewardship among heirs. Shared personal values, financial goals, and expectations will be among your heirs most important tools for preserving the wealth you have built. Formal documentation defining a common approach to wealth management, philanthropy, and conflict resolution can help.

Digitalisation is changing client expectations and behaviour and is leading family offices to redesign their business models. But it also requires them to adapt to this new world. If you want to operate successfully in a digital world, you have to consistently tailor your activities to customer expectations and become a data specialist.

Today, wealthy customers and their successors are largely active in a digital world. They are curious and demanding. They are orientated towards digital channels such as Google or Amazon, which have mastered the art of professionally offering small but fine components of the value chain. This means that services in the digital age must be both user-friendly and customised. This is another reason why the family office sector is subject to new requirements. In order to personalise digital touchpoints and provide individual information, competent data administration and data management skills are required. Only if family offices become “data-driven pioneers” can they continue to fulfil the expectations of their families and remain successful in the long term.

Digital dashboard instead of Excel

Digital wealth platforms have become established in portfolio management in order to create organised and ultimately profitable information from unsorted data. If a family office uses Excel spreadsheets for wealth management, the benefits of a digital wealth management platform should be examined, as platforms can simplify complexity. The more different investments are made, the more complex wealth management becomes. It becomes increasingly time-consuming to keep the master spreadsheet up to date and, as with any manual input, the number of data entries required also increases the susceptibility to errors. Not to mention the volatility of the markets, which makes updating the table even more difficult.

With a digital platform, on the other hand, data that was hidden in several Excel spreadsheets can be accessed. With the help of platform intelligence, it is sorted, automatically analysed and presented in structured and clear dashboards. For example, users receive a comprehensive overview of all bankable assets such as shares, bonds and cash as well as non-bankable assets such as private equity investments, property, cars and art. Wealthy private individuals and their advisors can analyse the performance of each individual asset in detail. Profits from share sales, liabilities from private equity investments, past and future dividends, custody fees, transaction costs, property costs and rental income are financial values that can be tracked.

Security as top priority

Wealth management is and remains a business of trust with the highest standards of due diligence and security. And security is usually one of the most important factors when a family office is considering whether to opt for a wealth platform. However, data on a platform based on bank data is likely to be more secure than in a single Excel spreadsheet, which can easily be put out of action, let alone overwritten, deleted or corrupted by an incorrect formula or input.

The human factor remains crucial

Modern digital wealth platforms address important challenges faced by their users by offering data aggregation, detailed analyses and error-free portfolio reports. Platform technology can also provide answers to other individual questions. But only the right interpretation leads to success in the data race. And that still requires human experts.

The human factor therefore remains in demand in wealth management – not despite, but precisely because of increasing digitalisation. The mountains of data are growing rapidly and the necessary analysis methods are available. Human knowledge remains indispensable for drawing the right conclusions. Wealth platforms therefore help with the fast, error-free and secure processing of information and support decision-making.

However, humans often still have the last word when it comes to assessing investment preferences. A new field of cooperation between humans and technology is emerging here, which emphasises that in the age of big and smart data, an individual can do less in portfolio management. Being an expert in everything was yesterday – the interdisciplinary duo of man and machine is today.

This article was originally published in German in the Wir-Magazin. Check the media page regularly to stay up to date on our press work.