Family Office

Physical Threats, Cybercrime High On Wealthy Families' Worry List - Study

Tom Burroughes Group Editor 24 February 2017

Physical Threats, Cybercrime High On Wealthy Families' Worry List - Study

Security, both physical and cyber, is weighing on the minds of wealthy individuals and their advisors, new data shows.

(Editor's note: This article first appeared in Family Wealth Report, sister news service to this one. Although the family office industry is relatively young in Asia, family offices the world over share many similar challenges, and with this in mind, this US-focused report is re-published here. We value readers' feedback: email the editor at

A survey of US wealth management institutions such as family offices finds that seven out of 10 are involved in helping make clients more secure from threats such as hackers and robbers, highlighting how worried people are about identify theft, fraud and direct threats to physical wellbeing.

The findings come from a study undertaken by Family Wealth Alliance, the Wheaton, Illinois-based research and consulting firm, showing that 42 per cent of family offices and other advisors to the rich keep security consultants on a retainer basis, push clients to develop formal security plans or manage security on a day-to-day basis. Some 27 per cent of offices limit activity to referring concerns to outside experts.

The research comes from a poll of 55 firms. Some 47 per cent of participants were multi-family offices and 26 per cent were single-family offices. The remainder was comprised of wealth management firms (22 per cent) and accounting firms serving wealthy families (5 per cent). This is the second time the FWA has asked the industry about security, following its first investigation in 2012.

Physical and cybersecurity issues loom large for wealthy individuals. In the field of cybersecurity, for example, massive breaches of banks such as JP Morgan (2014) and government agencies (Internal Revenue Service, 2016) have pushed the threat up the agenda. (In the case of JP Morgan, the bank said no actual client money had been stolen.) A number of specialist insurers have policies dealing with threats such as kidnapping (examples are Chubb and Hiscox) and a range of security firms advise the wealthy and their advisors on physical protection. There is a rising concern about the exposure of wealthy families to security vulnerabilities from the internet and social media, Joe Calabrese, president, Harris myCFO, a division of BMO Harris Bank, has told FWR. A study by Rothstein Kass in 2012 also highlighted the increasing use of personal security services among single-family offices.

The FWA’s report was issued at its eighth annual Alliance Partner Summit in Houston, Texas, earlier this month.

Among other details of the report, it said multi-family offices are most likely to take a more active role in security matters for clients, while firms more narrowly focused on investments tend to limit themselves to making referrals when problems arise, or to completely avoid personal security issues. Of all firms participating in the study, 31 per cent say they have no involvement in client security.

In their responses, participating firms express growing concerns about security risks facing their client families. Three in four say incidents involving families they serve have increased recently, with 24 per cent saying the increase has been substantial. One in four (27 per cent) say the number of incidents has stayed about the same recently, while none of the participants think there has been a decrease in security incidents. Many cite worrisome new types of threats, such as ransomware or tax return hijacking, as well as increased levels of sophistication in attempts to carry out more traditional scams such as wire transfer fraud.

When asked to identify the top security risks facing their clients, participants overwhelmingly cite identity theft and cyber fraud as most serious.

“The number of attempted cybersecurity fraud attempts we’ve seen continues to rise at a very rapid pace,” one participant, who was not named, said. Third on this list is social media-related risks and fourth is risk related to personal travel and security. Wire transfer fraud comes in fifth and credit card fraud sixth, it said.

The most commonly occurring security incident appears to be credit card fraud. Half (51 per cent) of the participants say at least one client household has experienced credit card fraud in the last year or so. The next most common is tax return fraud, with 31 per cent saying at least one household has been victimised. 

"We’ve seen more tax returns getting hijacked,” an unnamed participant is quoted by the study as saying. “That trend has been increasing and getting more sophisticated,” the participant added.

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