Artificial intelligence has the potential to help family offices make better decisions and run more efficiently — but there are also risks, as well as confusion, associated with it.
First, the confusion: The term “AI” is used to describe a number of different technologies, some quite new and some more established. And given the hype surrounding it, there is an incentive for companies to claim they are using AI even if the connection is thin.
“The term ‘AI’ is understood to encompass a wide range of technologies, from basic automation and text recognition to advanced predictive analytics and natural language processing (NLP),” says Adriana Zalucka, co-founder of MyFOTech. “Family offices are increasingly integrating AI to enhance efficiency and decision-making across various internal and client-facing functions.”
Recent — and continuing — developments in AI are greatly expanding the ways in which the technology may be able to help family offices.
“AI now is so accessible that family offices are starting to really think, ‘How can these technologies make our operations more efficient, make the family office more effective?’” says Danielle Valkner, family office leader for PwC US.
Exciting possibilities
Some family offices are already using AI, at least in limited ways.
“It doesn’t take out the thinking that we all need to do, but it has cut down some of the administrative time for things like writing,” says Jill Barber, president of CYMI Holdings, the family office of the Clay and Mary Mathile family. One example: “We use it as a vehicle to start some of our writing or PowerPoints. Then we build it out.”
This type of content creation assistance is just one of the ways AI may prove helpful to family offices. As the technology becomes more sophisticated and some of the initial problems are addressed, experts expect that family offices will have a range of uses to consider:
- Content creation. “Through natural language processing, AI automates tasks like generating real-time meeting summaries, drafting emails, and summarizing complex documents,” Zalucka says.
Eventually, AI could do more than just making writing meeting minutes and document summaries go faster — it could allow family offices to create content that they were not generally creating in the past.
“One example is being able to get access to large data sets and trends and use those technologies for developing new content, such as creating newsletters and summaries combining internal activities and experiences with outside events and trends,” Valkner says. “We’re seeing family offices really start to think about what that could mean for them.”
- Customized family solutions. Families generate a lot of documents, from letters and family histories to business and investment records. AI could help them make use of those documents in ways that have previously not been practical.
“We have some family offices that are considering creating their own sort of internal ChatGPT so that you could ask it any question about the family history, do a wide search of all of the documents, and get answers in lightning speed — whereas before it would take somebody a very long time to comb through a lot of documents in order to draw conclusions,” Valkner says. “So it’s becoming very accessible in a meaningful way to help make family offices more effective and more efficient.”
- Support for complex quantitative tasks. “AI also supports quantitative tasks, helping to code complex financial algorithms for tasks such as after-tax performance reporting and Monte Carlo simulations,” Zalucka says. “AI offers exciting potential to harness large data sets for predictive modeling and projections, optimizing strategies for trust and estate planning, cash flow forecasting, and investment due diligence.”
- Enhanced automation. Currently, some family offices use automation to speed up work processes such as data entry. But more advanced AI may be able to streamline or automate more advanced workflows as well.
Assessing the risks
New technologies come with risks, and AI is no exception. Using AI in family office operations can create challenges in areas such as data privacy, accuracy and change management. In addition, even if a family office chooses not to use AI, the technology is increasing cybersecurity and other fraud risks. (AI may also affect the investments of the family office — either in the form of threats to a family’s operating business or by affecting the companies in which the family office invests).
- Data privacy. One of the concerns surrounding large language models such as ChatGPT is that information entered into the model is no longer under the user’s control.
“Privacy concerns are the main challenge, and this underscores the need for secure, private AI instances that protect client and other sensitive information,” Zalucka says. “Various family office providers are also integrating AI technologies like GPT into their solutions — this raises significant security concerns, particularly regarding data privacy and the potential misuse of proprietary data to train AI models.”
There are a few potential solutions to this. One, as Zalucka notes, is to use a secure, private AI solution instead of simply using the publicly available versions. Another is to limit the data that is entered.
“We don’t put any client information into the AI, but I’ll do things like the newsletter. No family information goes into it unless it’s public information,” Barber says.
- Accuracy. Large language models such as ChatGPT are trained on external data and often do not have access to current information. The information they produce, while plausible sounding, is not always accurate. This is another reason for caution, especially when using AI to create content.
- Change management. Any new technology requires training staff members, some of whom may be resistant to changing the way they work. AI presents additional challenges — both due to the issues listed above and because some staff members may worry that the technology will replace them.
“Addressing privacy concerns and promoting team acceptance are crucial for successful adoption,” Zalucka says.
- Cyber threats. Wealthy families, and their family offices, are prime targets for cyberattacks because they are known to have money and may not have the same level of security as a large corporation. Now AI is giving new, more sophisticated tools to cyber criminals.
“On the positive side, artificial intelligence is advancing and providing so many opportunities for companies to become more efficient and to maintain a competitive edge,” Valkner says. “However, cybercriminals are also getting much, much more sophisticated with all these AI tools that are out there: being able to mimic somebody’s voice, being able to mimic somebody’s image. So that has elevated the concern.”
These risks are one reason some family offices are proceeding with caution.
“I’m excited about the potential, but for now we’re experimenting,” Barber says.
Balancing the risks and benefits will require both technical expertise and policies and education to address the challenges.
“Staying on top of all of the evolving trends, both as it relates to your company’s competitive landscape, but also as it relates to protecting your digital assets and your technology environment, is more critical now than ever,” Valkner says. “It’s really important for people to engage with the experts on this and really make sure that you have the leading-edge tools and policies and procedures to address these risks.”
