Protect Thyself

As the saying goes: “The more you have, the more you can lose.” 

The ultrahigh-net-worth population in the United States continues to grow at a 6 percent rate, with over 69,000 falling into the category, according to Wealth-X. The continued expansion of wealth enables more investment opportunities, greater discretionary income and growing inventories of residences, art collections and business investments.

However, with every asset there is a liability. While insurance is an important safeguard for protecting one’s net worth, it is not the only thing to consider. Developing a comprehensive risk management plan is important, and the family office can offer critical support in creating an expansive program to offset the liabilities and risks confronting families of wealth.  

A rarely discussed but unavoidable fact in the arena of wealth management is that many family offices are vulnerable to fraud, especially by trusted insiders. Boston industrialist Frederick Ayer Sr. and his descendants, for example, built a $600 million fortune over more than a century, which was then subjected to a
$58 million siphoning by a trusted family confidant. 

Unfortunately, the case studies are many. It is believed that a small office with fewer employees makes it easier to monitor and control fraud. However, the fewer employees, the more difficult internal controls become. Internal controls are a series of systems and procedures designed to serve as the first line of defense in safeguarding a company’s assets. A family office is no different. 

While not a guarantee, internal controls, if properly structured, can go a long way toward helping protect a family office against theft and fraud. It’s important to recognize that breakdowns in controls can occur, including human error, deliberate circumvention, management overrides and even collusion.

As technology advances, cyber
risks and threats against wealthy individuals become
more commonplace.
Similarly, the tools cybercriminals use continue to evolve with more sophistication. Therefore, it is not uncommon for a wealthy family to hire a specialized firm to provide security advisory services in order to evaluate current practices, identify potential risk areas and develop strategies to address cyber and personal security issues.

Certain types of coverage should be part of every family’s risk management program. For example, an appropriate level of excess liability insurance is critical in protecting the family from an unforeseen future claim against the wealth enterprise. Completing background checks (many times offered in homeowners policies) can provide greater transparency on risks associated with household staff. It is estimated that at least one in five Florida motorists are uninsured (UM) or underinsured (IUM) and it is equally common for wealthy individuals to not have adequate levels of UM/IUM coverage. Adequate coverage levels for business and personal risks should also be considered when serving as directors and officers of nonprofit organizations. 

Finally, the family office investment risk management plan is a critical path for wealth sustainability in measuring, managing and governing investment risks. This is a topic meriting future column discussion. The path to sustaining wealth can be a perilous one and should not be left to chance, but rather based on thoughtful analysis, planning and advice. ?

Julie Neitzel is a partner and advisor with WE Family Offices in Miami and a board member of the Miami Finance Forum. Contact her at Julie.Neitzel@wefamilyoffices.com or 305.825.2225. 

You May Also Like

Pride Week Festival Begins With Tribute to Pulse Nightclub Survivor

Miami Beach Pride’s week-long festivities will commence with a special tribute to the LGBTQ+ community honoring the victims of the tragic shooting at Pulse Nightclub in Orlando. A ceremonial “flip the switch” lighting event will illuminate the iconic 1111 Lincoln Road parking garage in pride colors as a sign of solidarity. It is the second

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale for $33 million. But other sales are heating up the oceanfront property at 8955 Collins Ave. developed by Alex Sapir and Giovanni Fasciano (both pictured

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is eagerly looking for signs about when air travel will begin to normalize. Against this backdrop of COVID-19, South Florida Business & Wealth organized a virtual

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service shipyard catering to South Florida’s marine industry. Bob built this business as a passion project, and because of his attention to detail and unique skill,

Other Posts

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and will not be business as usual right away. As leaders, you need to do the right thing to create an atmosphere of support with processes.

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of an above-normal season, a 30% chance of a near-normal season and only a 10% chance of a below-normal season. The Atlantic hurricane season runs from

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able to manage and vice versa. But, it is important to understand the difference. Both are important to the success of an organization. The key difference

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same day for (presumably) eternity. Every morning, the alarm goes off at 6 a.m. playing I Got You Babe, assuring both the protagonist and the viewer