Why do so many family offices use Excel?

Microsoft Excel is a household name – and has been so well accepted that it has become the generic name for “spreadsheets” (along with other competitors such as Google Sheets or Apple Numbers).

At a time when sophisticated financial software and complex data analytics, also enabled by Excel, dominate, it may seem surprising that many family offices – which traditionally have ample capital – still rely on this software for many core functions and tasks.

A recent LinkedIn post poked fun at this irony, as family offices can be slow to adopt new technologies that support the more complex data aggregation and investment management tools typically required for their core business.

If you look closely at the comments on the post, there is a lot to explain.

What is Excel really used for?

In short, Excel can be used as a Swiss Army knife in almost any organization, and the same goes for family offices.

Data teams use Excel to organize data, sales teams to organize leads and sales funnels, marketing teams for customer data, HR teams for employee information, C-level executives to report key metrics, and of course finance teams use Excel for all financial needs, from budgets to cash flow, forecasts, profit and loss statements – you name it.

In a family office environment, investment teams also use Excel to track investments and create reports with finance teams.

The continued appeal of Excel – Why does it dominate?

There are several reasons why Excel has cemented its position as an indispensable tool in managing the complexities of family wealth. One of these, and perhaps the most natural, is its incredible versatility, its wide range of uses and understanding, making it accessible to a wide range of users within the family office.

familiarity

Excel was first released in 1987 – the program itself is now 37 years old. For many older generations, Excel has remained a mainstay for a significant portion of their lives.

As Microsoft has continually improved Excel, family offices have developed similar spreadsheets that meet their specific needs for a range of use cases – from tracking investments to managing household expenses. Not only does Excel have a powerful set of features, but it also has a relatively easy learning curve, allowing new users to get up to speed quickly.

Marc-Phillipe Davies, co-founder of Deallocker, said it best: “Excel isn’t easy just because everyone has it and it costs next to nothing. It’s proof of what an incredible tool it is! Low learning curve, cheap, universal, reliable, trustworthy.”

For this reason, many family offices continue to rely on Excel as a trusted source of information. Which leads to…

Resistance to change

The saying “If it ain’t broke, don’t fix it” holds true for many family offices that continue to use Excel. Older generations of families are most comfortable with the software.

It’s also worth noting that this resistance is usually not the fault of the family office itself. In an industry known for its lack of transparency, there are few benchmarks that would force family offices to significantly improve their operations by updating their technology stack. This contributes to widespread resistance and fear of change – even when new options and features can at least significantly improve portfolio reporting capabilities on complex financial instruments.

As Michael Casciano of EVO Wealth Tech jokingly added: “After compound interest, inertia is the second strongest force in asset management!”

Cost

In addition, Excel is relatively inexpensive compared to specialized financial software, making it an attractive option for many family offices, especially those that are still in their early stages or have been in existence for many decades.

“I also see a strong dependence on spreadsheets and for the reasons mentioned, especially cost reasons, there is a great reluctance to change,” explained Ian Keates, CEO of Altoo AG.

In addition, Excel can be integrated with numerous other software applications (such as accounting systems and CRM platforms), increasing its usefulness across the family office ecosystem.

While there are many platforms that extend Excel’s functionality and can integrate with more complex alternative investments or assist with ESG or impact reporting, these toolsets can come at a cost, meaning many family offices may simply choose to “go it alone.”

Software providers don’t make it easy

Finding the right technology foundation or replacement for Excel is no easy task. Many vendors who are first to point out that family offices should not use Excel do not simplify their marketing, messaging and onboarding to make it clear how family offices can understand, compare, purchase and implement their solutions.

While there are many interesting and unique selling points among family office software providers, few invest the time and effort to transparently highlight their value propositions and unique features that might otherwise justify a switch from Excel.

From Excel to the stars

Although Excel is a powerful tool, it is important to know its limitations. For large and complex family offices, it may not be enough to manage all financial data and operations. In addition, manual data entry and calculations can be time-consuming and prone to errors. The key person risk that comes with only one person knowing how the spreadsheets they create work is also a risk that is often completely overlooked.

Many family offices looking for a solution in between are using hybrid approaches and combining Excel with specialized financial software for specific tasks. This allows them to leverage the strengths of both tools and optimize their processes.

The key takeaway is that while Excel may be sufficient, family offices that are committed to digitization – and are willing to expand their capabilities by investing in new tools – can access a wide range of new technologies that are reshaping the market.

Oliver Topham, Business Development Manager at Flanks, sums up: “The mindset of ‘we’ve been doing it this way for years and it works’ will only hold the asset management industry back. They need to consider how much time and money they could save by looking at the many technology solutions available today.”