In recent years, the number of extremely wealthy individuals has grown—and with it, the demand for specialized family office services. According to data from Wealth-X, a research and analytics firm focused on compiling data on the wealthy, there are nearly 291,500 individuals with a net worth of more than $30 million, holding more than $36,100 billion collectively.

As more affluent individuals and families achieve the level of wealth of a family office—typically a net worth of at least $100 million—a shift in their risk management strategies should be examined. Family offices should take a deliberate approach to risk management that includes staying up to date on relevant threats, developing a strategic plan to address them, and establishing a trusted network of partners who can help meet their unique needs.

Stay Abreast Of Emerging Threats
The risk management components of a family office’s responsibilities can vary widely in terms of breadth, complexity and timing. They might include conducting background checks on household or business employees, performing due diligence on business deals, securing personal and business insurance coverage, supporting the health and well-being of a family, preventing fraud, and managing physical security, privacy, and (increasingly) cybersecurity. While family offices have always performed some degree of risk management, today’s increasingly digital, high speed and globalized environment demands greater attention and scrutiny than in years past.

Family office executives often have deep backgrounds in the legal, accounting or financial fields, but limited expertise in managing the myriad risks that span a principal’s business and personal affairs. In addition, the nature of these risks is now evolving more quickly than ever before. This is due in part to advances in technology that have created a need for new security protocols to keep families safe. Today, family offices must navigate risk management challenges ranging from business continuity in the wake of a natural disaster, to health concerns, to cyberattacks, to physical security of homes and businesses, to social media privacy concerns. It is critical for family offices to invest time and resources in staying abreast of this rapidly shifting risk landscape.

Develop A Strategic Risk Plan
In addition to cultivating an up-to-date understanding of risks and threats, family offices should consider developing a strategic plan to manage them. The first step is conducting a baseline assessment, ideally via an annual evaluation. Best practices including leveraging professional risk and security consultants with relevant family office experience. These evaluations should be comprehensive to uncover all sources of risk and include methods such as conducting staff and principal interviews; taking stock of current operations, standard procedures, and capabilities; and surveying physical and digital risks at residences and workplaces. Once risk management priorities are identified, family offices should implement an ongoing risk management strategy that involves:

• Creating a primary response plan for each of the risk consequences identified
• Regularly communicating the need for a risk plan and implementation of that plan across the family office and family members
• Hiring security consultants to train and test preparation levels of family office staff and principals
• A detailed-communications plan for when problems arise, especially during a crisis
• Proactively contacting the family office’s service providers and learn about their business continuity and risk management plans
• Conducting annual reviews of family office risk exposures to stress-test plans, identify gaps and update plans accordingly
• Developing a network of family offices to share best practices and vendor recommendations

Establish A Network Of Qualified Partners And Service Providers
Discretion has long been a hallmark in the family office world. But family offices that operate within an extremely limited network may be at a disadvantage when it comes to accessing the knowledge and services they need to manage risk effectively. Working with advisors who have extensive risk management experience and direct experience working with many family offices can provide valuable context and insight on the niche exposures this segment faces. Additionally, as family offices evolve, their risk profiles are likely to change. Advisors or vendors with whom a family established relationships when they sold their company 10 years or a generation ago might need to be augmented to adapt to today’s needs.

Finally, as the family office industry flourishes, so do opportunities to network and share insights with other members of this highly specialized profession. From connecting over lunch with other family office executives, to attending virtual or in-person conferences and symposiums aimed at their specific needs and challenges, valuable opportunities to learn from other experts in the field continue to emerge. Risk management is an area where cultivating relationships with other professionals can add tremendous value to a family office’s operations.

In today’s complex and sophisticated financial environment, family offices must be vigilant and strategic about risk management. By monitoring evolving threats, developing and implementing a strategic plan, and maintaining a trusted network of partners, family offices can help ensure they are prepared to protect their principals in all the ways that matter.

Edward V. Marshall is managing director at Boston Private.