Despite their significant wealth, many HNW families often neglect cybersecurity measures. However, hackers are getting smarter every day, putting these families at risk of financial loss and damage to their reputations. This piece discusses the importance of cybersecurity for family offices and highlights strategies for improving it.
The impact of cyber risk on family offices
According to the 2023 UBS Global Family Office Report, many family offices fall short of best practices in managing cyber risks. The report showed that less than half (44%) have specialist cybersecurity controls. Yet over a third (37%) of all family offices have been the targets of cyber-attacks, some more than once.
Family offices are financial institutions that handle sensitive information like financial data, personal identity documents, and investment portfolios. They rely on trust and reputation to function effectively. Just because they operate under the radar does not make them immune to malicious actors on the internet. Cyber attacks can cause catastrophic damage, potentially leading to identity theft, financial fraud, and harm to the office’s and its clients’ reputations. Additionally, reports suggest that nearly $4 million is the average cost of a data breach globally, with individual family offices at risk of losing up to $500,000 in ransom.
Why family offices are targets
Cybercriminals view family offices as attractive targets due to their involvement with family wealth. Since family members’ personal information is accessible online and on social media, it exacerbates the threat. In addition to financial incentives, hackers may be motivated by personal grudges, further expanding the pool of potential hackers.
How family offices are targeted
A Deloitte report highlighted four of the most likely cyber threats that family offices and their families may face and the common methods hackers use to game their systems.
Extortion: Family offices can face extortion based on ransomware or blackmail. Hackers can use ransomware (or phishing) to access the office network and scramble files so that only the attackers know how to reverse them. Or they can use blackmail and threaten to publish sensitive data to the public.
Fraud: Family offices must be aware of potential fraud through business email compromise (BEC) and social media hijacking. BEC allows hackers to pose as trusted clients to commit financial fraud. Additionally, hackers could temporarily take over a key member’s social media account to manipulate stock prices for their benefit.
Espionage: Family offices often have considerable ownership in listed companies, and their principals may also hold political influence. As a result, family offices are vulnerable to cyber espionage. Hackers can infiltrate their cyber security to gather information for commercial or political motives.
Cyber-enabled physical threats: Family offices face cyber-enabled physical threats with the invention of the Internet of Things (IoT). Due to their increasing reliance on internet connectivity, hackers can target many connected devices inside families’ homes, including private jets, super yachts, and cars.
Common cybersecurity weaknesses in family offices
A Boston Private survey found that smaller family offices underestimate the impact and likelihood of cyberattacks. That often leads to inadequate investment in cybersecurity systems, as they overlook the risks posed by personal devices and public networks. Additionally, they may not have strong password protocols or multifactor authentication and may have little cybersecurity training or response plan.
The cost of inaction
A 2022 FBI report stated that phishing was the most common cybercrime, with an estimated 3.4 billion spam emails sent daily. While phishing ranked number one, investment fraud recorded the most financial loss (over $3.3 billion), followed by BEC ($2.7 billion) and tech support ($800 million).
Currently, the average cost of a data breach stands at $4.4 million. This figure considers direct financial losses, including theft of funds, unauthorised transfers, or ransom demands. Moreover, the costs of recovering from a cyber incident—such as hiring cybersecurity experts, legal fees, and potential regulatory fines—can be substantial.
Strategies for improving cybersecurity in family offices
To avoid the expensive consequences of a cyber attack, it’s best for family offices to take a proactive approach to cybersecurity. One effective step is to create a disaster recovery plan, which should be regularly reviewed and updated to address emerging threats.
Cybersecurity training and support
Training staff on the cybersecurity response plan is vital. Every family office member must be fully aware of the plan’s details and responsibilities. And regular training sessions should be conducted to ensure employees completely understand the plan and are equipped to handle any potential incidents confidently.
Stick to cybersecurity best practices
Family offices should practice cybersecurity hygiene. That means implementing password management policies and limiting access to sensitive data. Using multi-factor authentication (MFA) or two-factor authentication adds an extra layer of security. It makes it significantly harder for unauthorised individuals to access an account, even if they somehow obtain the user’s password.
Leverage external expertise
Finally, seeking external expertise is another crucial measure. These external experts can provide valuable advice on response plans, best practices, and unique strategies to ensure protection. They can be the final frontier to help you avoid costly mistakes. For example, Trustworthy has a platform that shields families and their advisors from breaches, identity theft, and other security threats. It complies with the most stringent industry standards for data confidentiality, integrity, and availability.
Trustworthy is the Family Operating System®, an online service that helps modern families and their advisors protect everything that matters — IDs, Finances, Property, Passwords, Insurance, Taxes, Legal, Business, Emergency Planning, Contacts, and more.
With Trustworthy, families are completely prepared for all of life’s moments, now and across generations.