Cybercrime is one of the most prevalent threats to family offices, with studies showing 26% of family offices have already faced a cyberattack. Does this surprise you?
Many family offices focus on hedging against financial risks and neglect to implement the right cybersecurity safeguards to minimize data breaches.
Understanding why your family office is a target for cybersecurity breaches and solutions to minimize these risks are vital to protect your assets going into the digital age.
Why are Family Offices at Risk?
Family offices are an integral part of the American financial culture, growing in popularity over the past few years. The Family Office Club estimates that there are between 500 and 1,000 single family offices and 2,500 to 3,500 multi-family offices that manage over $300 billion in assets.
The wealth that family offices retain makes them a prime target for cybersecurity hacks and attacks. The average cost per data breach in the United States is $4.35 million. Hackers don’t want to access your sensitive information for the fun of it. They engage in attacks for the monetary benefit, placing your family office at risk.
What are Ways to Reduce Cybersecurity Risks?
Implementing strategic goals and investing in the right resources can help you reduce the cybersecurity risk your family office faces. Consider the following solutions.
Change Your Mindset
The Columbia School of Professional Studies found that 47% of family offices underestimated the risk of cybersecurity attacks. Emphasizing the cost of taking a proactive approach over the risks of foregoing proper procedures gives hackers the ability to access billions of dollars in assets. Changing the mindset of your risk management team allows you to develop effective solutions to combat the growing threat of cyberattacks.
Utilize the Cloud
Cloud computing not only gives your family office flexibility in work capabilities, but also safeguards against complete data loss. When your entire family office operations are on a local drive and a hacker gains access, you risk the entirety of your sensitive information being wiped out.
On the contrary, the cloud automatically backs up records, minimizing the risk of losing information. The cloud also has built-in firewalls to block malicious activity and limit the vulnerability of your data.
The cloud is also AWS compliant, which is an Amazon security protocol that generates robust controls to maintain security and data protection. Using a system with built-in compliance features removes the need for an expensive IT team. Cloud security can typically offer better security compared to hiring a small to medium-sized company. In addition, implementing a cloud system allows for seamless scalability and reduced costs, ensuring your family office is only paying for the amount of storage you need.
Although the shift to the cloud can seem overwhelming, it’s important to increase the cybersecurity protocols in your family office. A tried-and-true backup plan generally requires your data to be backed up in three places, with two copies on different storage devices and one copy in an offsite location. Using the cloud meets the offsite location requirements, protecting the sensitive information of your family office from viruses, theft, and corruption.
As the cloud continues to grow in popularity for cybersecurity risk prevention, more third-party applications are able to link to your data. For example, apps like Zapier automates the workflow of your family office, scheduling automatic backups and minimizing security vulnerability. Only the administrator will have access to the sensitive information backed up by Zapier, lowering the risk of a hack.
Create Incident Response Plans
Many family offices have an incident response plan, but neglect to practice implementation and continuously tweak provisions to meet changing cybersecurity risks. An incident response plan should outline how your family office will respond to cyberattacks including each person’s responsibility and how the plan promotes the overall goals of the organization. Without proper planning, disruptions can hinder your family office’s operations for months.
Provide Continuing Education to Employees
Continuous employee training on cybersecurity risks and safeguards in the family office can minimize the threat. Studies show that 58% of family offices have already taken the initiative to train employees and family members on the risk.
Employees that don’t understand common cyberattack methods present one of the biggest risks to your organization. Take the time to encourage, if not require, continuing education on how to identify and deal with cybersecurity threats in your family office.
Regularly Test Internal Controls
Properly functioning internal controls can reduce your family office’s cybersecurity threat. Utilizing two-factor identification, frequent password changing, and restricting access to certain functions of the business are three simple ways to increase the security of your business. The internal controls of your family office should be tested regularly to ensure they are performing as intended.
For example, you may find that some employees don’t properly have two-factor authentication set up or unauthorized areas of the business are easily accessed. Detecting this information early is vital to increase security.
Generate Timely and Accurate Threat Data
Timely and accurate threat data not only alerts you of inefficiencies in your family office, but also allows you to respond swiftly to minimize the monetary impact. Let’s say that a hacker gains access to your family office reporting system. The damage can be minimized if the threat is caught within a few minutes compared to if the hacker has access for days or weeks.
Obtain Proper Insurance Coverage
Even if you implement all of the above risk reduction strategies, you should still have proper insurance coverage as a safety net. Worst-case scenario is your family office faces a cyberattack and loses millions or even billions of dollars. What then? Insurance can give you financial protection and peace of mind if your office does face a successful attack.
The goal of family offices is to maintain and grow the wealth of the individual or family through strategic goals and risk reduction strategies. As cybersecurity continues to be a viable threat to your family office, it’s important you take the necessary steps to protect your assets.