Family offices are facing substantial and multiple risks but frequently lack the resources to effectively manage them, a new report warns.
Law firm Dentons surveyed around 200 family offices and discovered that while a slim majority conduct regular risk assessments, most struggle to mitigate risks when necessary. On a positive note, the percentage that is underestimating risks has declined to 30% in 2024 from 42% in the previous report in 2020.
There are growing concerns for family offices such as cyberattack risk which 70% of respondents say has seen a dramatic increase. But just 31% said they have sophisticated risk management programs in place and only 29% believe their training programs are adequate. Additionally, less than half have cyberattack insurance despite insurance being a first line of defence for family offices.
Although cyber is a significant concern, family offices feel the greatest current risk is from geopolitics. Again, their preparedness to mitigate this risk is low with just 17% having clear procedures in place.
Another area where family offices are overexposed is insider threats. Only 54% of family offices who participated stated that they participate in risk mitigation/security training and risk programs are undermined by team shortages.
Turning to external risk management is common, but the report says this is often sub-par and just 55% of internal teams have the knowledge to ask the correct questions of external advisors.
The lack of a robust human team of professionals to mitigate risks means more family offices are relying on technology and see this as the solution. However, the report warns that investment in human capital and robust procedures is required.
While the issues being faced by family offices are multi-faceted, one concerning finding of the survey is that they are exacerbated by a lack of family concern or awareness, with one third of respondents citing this as a key challenge.
Edward Marshall, Dentons' global head of family office, said the survey revealed some “dangerous gaps” in risk management practices at family offices, with quick fixes not sufficient.
“Rather, it will require a fundamental shift in culture and mindset toward prediction over reaction,
as well as increased professionalization of the risk management function in family offices,” he said, adding that innovative operational strategies are also required.
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