A Holistic Approach to Managing Risk
Getting ahead of risks requires a holistic, strategic approach to identify exposures and develop plans to mitigate or avoid them. Advisors can play a critical role in helping families move forward with clarity and focus. New risks continue to emerge, but family offices can manage them with the right team and specialized risk management and insurance expertise.
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“Family Office Risks: Managing the Impact of Change.”
FAMILY OFFICE RISKS:
MANAGING THE IMPACT OF CHANGE
As families extend and their aggregate wealth expands, they are likely to encounter the need to re-assess their tolerance for risk and adjust their risk management and insurance programs. More family offices are now serving at least three different generations in a single structure, and some are serving four generations at once.
Generational differences, expanding cyber concerns, broad catastrophe exposures, and a growing complexity in family assets are leading to an increase in strategic responsibility and expectations of the family office.
High-net-worth families may range from a single household to more than 50 households and hundreds of family members. Wealthy families often own multiple properties, automobiles, watercraft, and private fine art collections, often in varied locations around the world.
In addition to property risks, personal involvement in non-profit and philanthropic organizations, especially as a board member, can bring increased liability exposure. Affluent individuals face a greater risk of personal liability and both physical and cyber security threats.
Severe weather, economic volatility, increasing regulation, and litigiousness are among the factors behind expansion in property and liability risks for commercial and family enterprises, including nonprofit institutions. Many families own and operate successful businesses and may even have founded the leading public or private companies in their respective industries. The range of risks that corporate entities face therefore can affect families that own, control, or participate in them.
One of the fundamental roles of a family office is to assist in the management of wealthy families’ assets, including investments. Families’ increasing involvement in direct investing, impact investing, and philanthropic endeavors introduces new and sometimes discrete exposures that can blur the lines between personal and commercial risks. Family offices can be caught in the middle of divergent family views.