Family Office Security & Risk Report 2024

TL;DR

Read further to learn about the Simple take on security and risk:

• Family offices are evolving through generational transitions and digitisation which bring new risks.
• Human and technological risks need to be managed across the size and complexity of family offices for robust operations. 
• Cybersecurity requires resources and planning to mitigate risk, but remember the human factors and employee training.
• The risk of fraud has both internal and external components. 
• Reputation management requires resources and planning before a crisis hits. 
• Physical security demands a layered approach and investment.

“What we’ve seen post pandemic is a subtle shift from discussions around ‘security’ to clients asking for ‘Secure Lifestyle’ advice.”–Kate Bright, UMBRA International

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Purpose

A recent report found that family offices understand risks, yet face difficulties meeting their needs in crucial areas. The top three service gaps reported by family offices in 2024 are cybersecurity (40%), family governance and succession planning (31%), and family wealth education (31%). 24% of respondents reported data breaches or financial fraud. Simple’s data and interviews support these findings. The purpose of this report is to draw focus to crucial areas of family office operations by drilling down into distinct security and risk categories and offering actionable solutions.

Operational & Organisational Risk

Family offices across the range of operational complexity and AUM face distinct operational and organisational risks. This risk category is split across daily operations including human and technology factors. The organisational form of family offices structures both the risks encountered and mitigation strategies. Only around half of family offices reported having a formal process for risk identification in place. Family offices are unique businesses as their very nature may introduce complicated family dynamics to boardrooms and front office decision-making processes. Muddied organisational structures lead to more problems with family members resistant to change; it is far easier to maintain business relationships within traditional enterprises.

Cybersecurity: Threats rank high among operational concerns of family offices. With the increasing digitisation of financial operations, family offices are susceptible to cyber-attacks. These attacks can result in data breaches that cause financial losses and reputational damage. Implementing robust cybersecurity measures, such as encryption, multi-factor authentication, and regular security audits is essential to mitigate this risk. These factors are discussed in more detail below.

Compliance and regulation: Family offices must navigate a complex web of regulatory requirements, including tax laws, anti-money laundering regulations, and securities laws. Non-compliance can lead to hefty fines and legal consequences. To address this risk, family offices should establish robust internal compliance procedures, conduct regular audits, and stay abreast of regulatory changes. Increased complexity of wealth elevates these challenges. Wealth management software designed specifically for family offices can bring clarity to diverse holdings and ease the staff-intensive process of meeting compliance and regulatory requirements.

Operational resilience: Disruptions such as natural disasters, pandemics, or technological failures can disrupt operations and hinder the ability to manage single-family offices or multi-family offices to serve clients effectively. Developing business continuity plans, diversifying service providers, and implementing secure remote work infrastructure are essential to ensure operational resilience in the face of unforeseen events. Further to this point is key person risk, the business risks associated with losing an individual within an organisation. The damage may include operations grinding to a halt and loss of reputation or personal relationships with important business associates. Building in operational redundancy with thoughtful delegation across a range of team members that share knowledge and workflows helps lower key person risk.

Talent Management: Recruiting and retaining skilled professionals is a challenge for family offices, especially in competitive labour markets and family offices report difficulty attracting and retaining talent. A lack of qualified talent impedes the ability to deliver high-quality services. Family offices should invest in talent development programs for their existing staff, offer competitive compensation packages, and cultivate a positive work culture to attract and retain top talent. This all falls under the umbrella of talent management and requires an HR mindset, if not employees under which HR responsibilities rest to bottom line this process. Identify, invest in, and retain your talent.

Conflicts of Interest: Family offices often serve multiple generations of a family, each with their own interests and priorities. Conflicts of interest can arise when serving diverse stakeholders, leading to ethical dilemmas and strained relationships. Implementing transparent governance structures, establishing clear policies on conflicts of interest, and fostering open communication can help mitigate this risk.

Family offices face a range of operational and organisational risks that require careful management to ensure long-term success. By implementing robust risk management practices, staying abreast of regulatory developments, and fostering a culture of transparency and accountability, single and multi-family offices can mitigate these risks and effectively serve their beneficial owners.

Continuity & Succession

“Different generations face different risks, and it is important to realise that the younger generations face risks related to technology and social media, which are not understood or maybe even known by their parents..”–Kasper Hjorteberg, Zero-Alpha – Executive Services

Next generation planning has been top of mind for family offices for several years now for good reason. We are in the midst of the largest wealth transfer in history across wealth levels, but especially applicable to family offices with more to gain and lose by effectively managing this risk.

Continuity planning involves preparing for unexpected disruptions, such as the incapacitation or death of key personnel, natural disasters, or economic crises. It entails developing comprehensive business continuity plans and establishing redundant systems and processes. By proactively addressing potential risks and implementing contingency measures, family offices can minimise disruptions and safeguard their operations and assets.

Succession planning: Family office continuity and succession planning are crucial aspects to ensure long-term viability and effectiveness. Given the often intergenerational nature of family offices, preparing for leadership transitions to ensure operational continuity is paramount. Single family offices often struggle with succession planning, particularly in leadership transitions from one generation to the next. Planning for the loss of a family member is difficult. Making what are ultimately strategic business decisions while facing these complex emotions is even more fraught. 48% of family offices globally report deep concerns with succession planning. Failure to plan for leadership change can result in intrafamily instability and conflicts. Establishing clear succession plans, engaging the next generation, establishing formal processes for leadership transitions, and fostering open communication within the family are critical to mitigating this risk. Preparing successors and aligning their skills and values with the objectives of the family office smooth leadership transitions.

Family offices need to prioritise continuity and succession planning to navigate leadership transitions and ensure operational resilience to succeed in their goals of wealth preservation and intergenerational wealth transfer. Single family offices must invest time and resources internally and seek counsel from external advisors, while multi-family offices should draw attention to and support these processes to uphold their commitment to serving clients and preserving family legacies for future generations.

Cybersecurity

“Even with sophisticated technology being developed in mobile devices with privacy at the forefront, lockdown modes and VPNs being added, this does not mean that you are immune to a cyber-attack and being hacked. This is a common misconception that allows hackers to exploit this false sense of security and gain access to devices.”–Lucy Burnford, CEO, coc00n cyber

Cybersecurity, infosec, data security. Call it what you will, protecting digital information is crucial because much of our most sensitive data is stored in digital form, often connected to the internet. Its loss or theft is a major risk for single family offices. It is perhaps an even more critical concern for multi-family offices, given the sensitive information they handle on behalf of a number of clients and their need to communicate with a geographically dispersed client base. Protecting against cyber threats requires a multi-layered approach that encompasses technical solutions, employee training, and proactive risk management. Here are key considerations and strategies for enhancing cybersecurity in family offices.

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Network security: Implementing robust network security measures, such as firewalls, intrusion detection systems, and encryption protocols, can protect against unauthorised access and data breaches. 

Endpoint security: Securing endpoints, such as computers, laptops, and mobile devices, is essential to prevent malware infections and unauthorised access. This can be achieved through endpoint protection software, regular software updates, and employee awareness training.

Email Security: Phishing attacks targeting family offices are common and can result in data breaches or financial losses. Deploying email filtering solutions, conducting phishing awareness training for employees, and implementing multi-factor authentication can mitigate the risk of email-based attacks.

Data Encryption: Encrypting sensitive data both in transit and at rest can protect it from unauthorised access even if it is intercepted or stolen. Implementing encryption protocols and data loss prevention solutions can help safeguard confidential information.

Employee Training and Awareness: Educating employees about cybersecurity best practices, such as creating strong passwords, identifying phishing attempts, and reporting security incidents is essential to create a culture of security within organisations. Many attacks are now social engineering aka “social hacking” given the increased use of encryption and multifactor authentication where attackers seek to exploit human fallibility to gain access to data. This raises the importance of training across the range of an FO’s organisational chart.

“Awareness and education persist as the main challenges. Given that social attack vectors continue to pose the greatest threat, awareness of their continuously evolving nuances and what not to do (perhaps more importantly than what to do) across the user base remains the most crucial step in having good security hygiene.”–Neel Mullick, Chief Information Security Officer, Trusted Family

Incident Response Plan. Developing and regularly testing an incident response plan can help family offices effectively respond to cybersecurity incidents and minimise their impact on operations and clients. Developing a plan is, perhaps, beyond the internal capacity of most family offices and an ideal task to look to advisors to partner.

Implementing these cybersecurity measures and staying abreast of emerging threats will allow family offices to enhance their resilience against cyber attacks and protect the interests of their clients and stakeholders.

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Fraud

Single family offices and multi-family offices face significant fraud risks. The risks may increase according to the complexity of their operations. The primary goal of most cyberattacks is fraud, but the risk unfortunately does not stop there. 

Embezzlement and misappropriation: One of the most common types of fraud in family offices involves embezzlement or misappropriation of funds by employees or trusted advisors. This can occur through unauthorised transfers, falsified expense reports, or misuse of corporate credit cards. Implementing robust internal controls, conducting regular audits, and segregating duties can help mitigate the risk of embezzlement. This risk ties into the key person risk, discussed above, and might share the solution of creating a work culture of sharing and openness that allows other employees to step in to fill gaps and also create the necessary checks and balances to prevent unfettered access to funds.

Insider Threat:  Many family offices fall short when it comes to monitoring employee security profiles and developing effective insider threat programs. While the majority of family offices conduct some level of background check on key personnel, thorough periodic reassessment (e.g., every three years or triggered by a security incident) of family office employees is essential. Family offices should recognise that insiders are not always malicious. They can also be unintentional from anyone with authorised access to or knowledge of how the family office operates, as well as critical infrastructure such as finances, homes, family members, computer networks, etc.

Investment Fraud: Family offices often engage in complex investment strategies across various asset classes, making them vulnerable to investment fraud schemes. This can include Ponzi schemes, insider trading, or manipulation of financial statements to inflate returns. Conducting thorough due diligence on investment opportunities, diversifying portfolios, and engaging reputable investment advisors can help mitigate the risk of investment fraud.

Identity Theft: Family offices often handle sensitive personal and financial information, making them targets for identity theft. Fraudsters may attempt to steal identities to access bank accounts, open lines of credit, or engage in other illicit activities. Implementing strict authentication protocols, monitoring account activity for suspicious behaviour, and educating employees and clients about the risks of identity theft can help prevent this type of fraud.

Family offices face a range of fraud risks that can have serious financial and reputational consequences. Implementing robust internal controls, conducting thorough due diligence, and investing in cybersecurity measures mitigate the risk of fraud and safeguard the interests of families and clients.

Reputation Management

“Protecting a Family Office brand is an imperative for our clients. Indeed, a clear brand purpose and wealth story acts as a north star for everything from succession planning to philanthropic strategies to proactively managing and protecting our client’s legacy. What’s more, a ‘Brand Bodyguard’ is an essential reputational backstop that can enable Family Offices to be more resilient and protected in the face of crisis.”–India Wooldridge, Catalyst

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Families spend generations building relationships and reputations that speak to their role in their communities. SFOs function to maintain that position. Multi-family offices are entrusted with managing wealth and offer a broad range of services. MFOs are trusted with upholding the reputation of their clients and rely heavily on their own reputation to attract and retain clients, partners, and employees. Reputation management is critical for retaining the trust and confidence of stakeholders and safeguarding the long-term success of all configurations of family offices. Here are key considerations and strategies for effective reputation management.

“In today’s high-stakes digital arena, risk management must transcend mere risk mitigation to embrace reputational resilience. It’s about forging a reputation that doesn’t just weather attacks but emerges stronger from them. The focus should be on cultivating resilience through authentic, farsighted digital identities that can withstand public scrutiny and thrive amidst information wars.”–Chris Padilla, Legendary

Transparency and Communication: Establishing transparent communication channels with clients, stakeholders, and the public is essential for building trust and credibility. Family offices should proactively communicate their values, investment strategies, and performance metrics to demonstrate accountability and foster open dialogue.

Ethical Conduct and Integrity: Upholding high ethical standards and integrity is fundamental to maintaining a positive reputation. Family offices should formulate, adopt, and adhere to ethical guidelines and industry best practices, avoid conflicts of interest, and act in the best interests of their clients and stakeholders.

Client Service Excellence: Providing exceptional client service and personalised attention can enhance the reputation of a multi-family office. By understanding clients’ unique needs and preferences, delivering timely and responsive service, and exceeding expectations, family offices can differentiate themselves and earn the loyalty and advocacy of their BOs and clients.

Risk Management and Compliance: Effectively managing risks and complying with regulatory requirements are essential components of reputation management. Family offices should implement robust risk management processes, conduct regular audits, and stay abreast of regulatory changes to mitigate the risk of financial losses, legal disputes, and reputational damage.

Crisis Preparedness and Response: Developing and regularly testing a crisis management plan can help family offices effectively respond to unforeseen events and protect their reputation in times of crisis. By anticipating potential risks, establishing clear communication protocols, and mobilising resources to address crises promptly and transparently, family offices can mitigate the impact on their reputation.

Community Engagement and Corporate Social Responsibility (CSR): Engaging with the community and supporting social causes through philanthropy and CSR initiatives can enhance the reputation of a family office. By contributing to the well-being of society and demonstrating their commitment to corporate citizenship, family offices can build goodwill and enhance their reputation as responsible stewards of wealth.

“Family offices tend to look at risk in terms of asset allocation and reporting requirements but tend not pay the same attention when it comes to reputational risk. Reputation is your single most important asset and leaving it unconsidered in your risk factoring can leave you incredibly vulnerable.”–Samantha Losey, Montfort

Family offices can build and maintain a positive reputation that strengthens relationships, fosters growth, and sustains long-term success by implementing these strategies.

Physical Security

Family offices, entrusted with managing substantial wealth and assets, must prioritise physical security to protect their clients. Physical security encompasses measures to safeguard physical assets, premises, and personnel from unauthorised access, theft, vandalism, and even violence. Here are key considerations and strategies for enhancing physical security in family offices:

Access Control Systems: Implementing robust access control systems, including keycards, biometric scanners, and security guards, can prevent unauthorised individuals from entering restricted areas within homes and offices.

Surveillance Systems: Installing surveillance cameras and alarm systems both inside and outside premises can deter criminal activity and provide valuable evidence in the event of a security breach.

Perimeter Security: Securing the perimeter of homes and offices with barriers, fences, and controlled entry points can prevent unauthorised access and intrusions.

Security Personnel: Employing trained security personnel to monitor the premises, conduct patrols, and respond to security incidents can enhance the overall security posture of family offices.

Visitor Management: Implementing strict visitor management protocols, including registration, identification checks, and escorting procedures, can prevent unauthorised individuals from gaining access to sensitive areas.

Emergency Preparedness: Developing and regularly testing emergency response plans, including evacuation procedures, can ensure the safety of employees and clients in the event of a security threat or natural disaster.

Implementing these physical security measures can mitigate the risk of security breaches, protect valuable assets, and safeguard the well-being of personnel and clients.

Holistic Risk Management

Some firms offer holistic services across a range of risks that family offices may encounter. UMBRA International Group is a Secure Lifestyle Services provider to family offices, which offers three security suites – UMBRA Secure offers in-house expertise, crisis management, invisible security, UMBRA Advise offers secure lifestyle planning through their expert advisors in areas such as nextgen and security, and UMBRA Select offers trusted recruitment services to mitigate operational risk.

Concentric provides physical security, cyber security, and intelligence solutions. Its family office services are tailored to protecting families and their residences through security agents. It also works backstage to conduct due diligence and background investigations, performing risk analysis, international operations, and personal cyber security.

Presage Global, led by Founder and CEO Edward Marshall, is an intelligence-powered risk management and business advisory firm providing expert advisory services to navigate complex challenges, improve performance, and mitigate risks from due diligence and business transactions to strategic intelligence and disputes. 

Similarly, Zero-Alpha is a network of highly skilled specialists that specialises in advising and assisting private and corporate clients across a wide spectrum of holistic risk management settings on a referral-only basis.

Physical Security

Some service providers offer distinct physical security services – one such example is Guardian, which is a full-service provider of duty-of-care solutions for aimed at companies with activities abroad. Guardian provides consultancy, training, and operational services intended to mitigate risks for travelling employees.

Digital & Cybersecurity Risk

Red5 offers comprehensive digital security and strategic advisory services to high-net-worth executives and families. The firm focuses on threat monitoring, privacy, and intelligence services balanced through personal and technological solutions. It also offers threat, vulnerability, and risk assessments in addition to insider threat consulting. Its leadership draws on extensive intelligence, risk assessment, and risk mitigation experience in the public and private sectors.

Other firms focus on digital and cyber security. Former GCHQ & NCSC cyber security experts designed Coc00n to provide personal device protection, cyber consultancy, and cyber concierge services. The firm is laser focused on their mission of digital security across its range of technological solutions and consulting services. 

Defuse Global offers investigation, intelligence, and threat management services to both private and corporate clients aimed at countering and resolving disputes, harassment, concerning and threatening behaviours, and unwanted approaches that may cause physical, reputational, or psychological harm. 

Cyber Concierge specialises in cyber security services for high net worth individuals, family offices, executives and wealth management firms, and specialises in protecting brand, lifestyle and identity against cyber theft.

Digitalis is a London-based advisory firm of over 70 people, helping clients protect and advance their online interests through digital intelligence and proprietary technology.

Governance & Dynamics

Concentrating on mitigating operational and organisational risk, Trusted Family is a technological solution in the form of a secure and centralised governance platform that enables directors, shareholders, family members and their close advisors to easily connect and collaborate at any time, on any device.

Styled as the family operating system®, Trustworthy is an online service in the form of a secure communication platform that helps modern families and their advisors protect everything that matters – IDs, finances, property, passwords, insurance, taxes, legal, business, emergency planning, contacts, and more. intelligence and disputes.

Communication & Reputation

Sanctuary Counsel is a service provider dedicated to managing reputational risk. It functions as an independent strategic communications firm specialising in both reputation management as well as perception-changing campaigns. Its services include business communication and crisis support through skilled staff.

Reputation Defender by Norton, founded in 2006,  is an online reputation management service with a special focus on family privacy, as well as solutions for executives and corporations that comprise image and video remediation, strategic publication, analysis and reporting, and more.

Founded in 2019 by Chris Padilla, Legendary is a boutique reputation management company specialising in high-profile brands and individuals, that specialises in digital marketing, SEO, social listening, content creation and crisis communications.

Montfort Communication is a London-based specialising in Corporate and Crisis Communications, Digital Advocacy and Protection, Asset and Wealth Management, and more.