The Changing IT Risk Environment for Family Offices

Why family offices are putting more emphasis on privacy, AI governance, and IT security again, and what areas still need work

Summary for Executives

Family offices, which are specialized businesses that take care of the needs of ultra-high-net-worth (UHNW) families, are now facing a new kind of risk. They used to care mostly about getting good returns on their investments and paying as little in taxes as possible. Now, though, they have to deal with a very digital world. Cyber threats, privacy violations, AI governance issues, vendor compromises, and multi-jurisdictional compliance are all changing what it means to protect family wealth and continuity.

The level of exposure is huge. The richest 0.7% of people own about 41% of all the world's wealth [1]. Family offices manage assets worth trillions of dollars [2]. Because they hold a lot of sensitive data, have private profiles, and often have weak defenses, they are high-value targets for cybercriminals and systemic risk actors.

This white paper gives principals, CEOs, CFOs, and CIOs a structured plan for dealing with IT-related risks. It points out useful, doable solutions by using data on industry governance, technical service insights from IT risk frameworks, and Brooke Harrington's ethnographic research in Capital Without Borders [3].

Some important things that have come to light are:

Cybersecurity is more about strategy than technology. ISO/NIST alignment, yearly penetration tests, and ongoing monitoring are some of the basic requirements.
Privacy is fragile; to maintain confidentiality, family offices must adopt social media awareness, data minimization, and encryption measures.
Adopting AI requires governance: AI can find problems and make predictions, but if it is used without limits, it could lead to bias, data leaks, and legal problems.
When moving to the cloud or updating old systems, safety is key. Cloud migrations come with both configuration risk and resilience, while old infrastructure is a liability.
Over 80% of businesses say they have had at least one vendor breach, which means that third-party vendors are a weak point [4].
Resilience is both cultural and technical, and it needs clear communication, tested backups, and plans for responding to incidents.

At the end of this paper, there are practical checklists for CEOs, CFOs, CIOs, and HNW principals.

Introduction: The New Exposure of Technology

The original goal of family offices was to keep money safe from taxes, public scrutiny, and bad management. They protected their assets as much as they protected their privacy. Harrington says that wealth managers often "kept together fragile organizations almost in spite of family members themselves" [3, p. 42] instead of just getting the best returns.

IT is now what keeps these groups together. Many places turn wealth into digital form. A typical UHNW family may have "assets in a dozen different jurisdictions and family members in another half a dozen," according to [3, p. 213]. Every device and connection creates vulnerabilities, and every jurisdiction has its own rules for compliance.

In the past, secret bankers and opaque trusts made sure that privacy was protected. Now, it depends on cyber resilience, cloud governance, and safe digital systems. In technology, existential risk has taken the place of back-office support.

The Evolving Landscape of IT Risk

Cybersecurity as a Strategic Priority

Family offices are now often the targets of targeted cybercrime. Unlike banks, they often do not have defenses at the enterprise level. Their enemies think they are rich but not well protected.

Some of the most important dangers are:

Ransomware locks up private files and asks for millions of dollars in ransom.
Business email compromise (BEC), in which enemies pretend to be advisors or principals.
Attacks on the supply chain that use flaws in trustees, IT companies, or law firms.

To fight this, offices need to use well-known frameworks like the NIST Cybersecurity Framework (CSF) and ISO/IEC 27001. These frameworks [5] cover identity management, data protection, monitoring, and incident response in a systematic way.

Good advice:

Set up security information and event management (SIEM) monitoring that works all the time.
Do external penetration tests once a year and fix any problems right away [6].
Require every user to use multifactor authentication.
Segment networks into parts, like operations, finance, and guests.
Every three months, employees should get training on phishing and insider threats.

According to a top IT risk program [6], "continuous monitoring, annual penetration testing, and automated audits" are now standard practices.

Privacy and Confidentiality in the Digital World

In family office work, privacy is what builds trust. Harrington kept track of customers who kept their promises secret, even from their own family members [3, p. 78]. But privacy is getting weaker and weaker, as shown by leaks like the Panama Papers.

Basic steps:

Data classification: put the most sensitive data first (like communications, investment records, and personal IDs).
All private information is encrypted while it is being sent and while it is sitting still.
Audit trails: keep track of and look at every file access.
People teach younger generations about the risks of sharing too much on social media.

To protect privacy, there must be written rules, yearly audits, and awareness throughout the family. Offices must follow rules like GDPR or their local equivalents while also encouraging a culture of digital privacy.

AI Governance: Pros and Cons

More and more family offices are using artificial intelligence (AI) in their daily work. You can use it for anything from finding strange patterns in cybersecurity logs to making predictions about portfolios. Technical providers have already stressed how important "AI-powered tools for data governance, predictive analytics, and cybersecurity" are for making systems more resilient [6].

The same technology, on the other hand, makes things more dangerous. AI is not a neutral assistant; it can make things more dangerous if it is not properly controlled.

Main Risks of AI in Family Offices

Data Leakage: Private family information could be accidentally entered into AI systems that are open to the public, where it could be stored or used again without permission.
Unclear Decisions: It may be hard to explain why machine learning models make certain recommendations, which could make it harder to hold people accountable.
Bias and Compliance: Countries like the EU are making laws that deal with AI directly. If AI systems are not controlled, they could make decisions that are unfair or break the rules.
Shadow AI: Employees may use consumer-grade AI tools without permission, which can lead to the flow of data that is not allowed.

Ways to Measure Practical Governance

The NIST AI Risk Management Framework (AI RMF), which came out in 2023 [7], gives structured guidelines for how to make AI design, development, and deployment more trustworthy. Family offices must do the following things:

AI Policy Development: Make a list of the kinds of data that AI systems can use, how to check the results, and when people need to be in charge.
Vendor Vetting: Work only with AI suppliers that have strong data security measures, follow the rules, and meet their contractual obligations.
Human Oversight: Have people look over all decisions made with AI, especially those that have to do with money and compliance reporting.
Regular audits: Set up review cycles to check the fairness, accuracy, and unintended bias of AI outputs.
Training and Awareness: Teach your employees about the pros and cons of AI, and tell them not to rely too much on results that are not clear or reliable.

AI should not be a blind spot that puts privacy and trust at risk; it should be a force multiplier for resilience.

Moving to the Cloud and Old Systems

Many family offices still use old IT infrastructure, like custom databases for trust accounting and on-site servers that hold decades' worth of old email. Even though they are well-known, these old systems are dangerous for business and security. They often do not have patches for known security holes, do not work with modern cybersecurity controls, and vendors do not support them.

Risks of Old Infrastructure

Unpatched Vulnerabilities: Systems that are not supported are at risk because they can not get security updates.
Inefficiency: Old systems often need to use manual workflows, which makes mistakes more likely.
Incompatibility: Old infrastructure may not work with new security or compliance tools.

Plan for Modernization

Industry service frameworks say that "legacy system modernization" is a good way to make systems safer and speed up processes [6]. The best plan is to do it in stages:

Full Inventory: Make a list of all the dependencies, infrastructure, and old apps.
Risk Ranking: Rate each system based on how open it is to attack, how vulnerable it is, and how important it is to the business.
Cloud Migration: Move systems that can be updated to the cloud safely. This makes it strong, flexible, and able to patch itself. One guide [6] says that using the cloud should "enhance scalability and protection."
Post-Migration Audits: After moving systems, do audits and penetration tests to make sure that no new holes have been found [6].
Decommissioning: Get rid of any remaining attack surfaces by quickly getting rid of old systems.

Things to Think About for the CFO and CIO

Cost vs. Risk: If systems are still out of date, the budget should include both the cost of a breach and the cost of replacing them.
Hybrid Options: If you have to keep some data on-site for legal reasons, invest in segmentation and hardening.
Vendor Contracts: Make sure that cloud provider contracts include controls over where data is stored, the right to audit, and encryption.

Modernization is a must. It is the difference between being weak and being strong.

Risks in the Supply Chain and with Vendors

Family offices depend on a lot of outside service providers, such as custodians, trustees, law firms, investment advisors, and IT consultants. Each vendor makes the attack surface bigger. According to industry research [4], 80% of businesses have had at least one breach caused by a third-party vendor.

Common Weaknesses of Vendors

Small Businesses: Often do not have strong security. For example, advisors or small law firms might not have security that works for big companies.
Shared Access Accounts: Sometimes, vendors make it harder to hold people accountable by giving passwords to more than one employee.
Not Enough Notification: Vendor breaches might not be reported, putting family offices at risk.

A Plan for Managing Risk

Due Diligence: Before hiring someone, do your homework by checking for certifications like ISO/IEC 27001 or SOC 2 Type II and, if you can, looking at independent audit reports.
Contractual Protections: Make sure your contract spells out how to encrypt data, how to audit it, and how to notify you of a breach (within 24 to 72 hours).
Access Management: Make sure that vendor accounts follow the least-privilege rules. Give access only when it is absolutely necessary, and take it away right away when it is no longer needed.
Continuous Monitoring: Watch for strange behavior from vendors and ask for yearly security attestations.
Critical Vendor Classification: Find out which vendors are most at risk and keep a closer eye on them.

Making Plans for Emergencies

Family offices should be ready for vendors to fail or break. You should back up important data outside of vendor systems and look into other options in depth. For instance, the family office should keep encrypted backups offline in case a cloud storage service is hacked.

Vendor governance is important for operational resilience and is more than just following the rules.

Risks of Remote and Hybrid Work

Even for family offices that have always preferred centralized, secret operations, remote access and mobile work have become common. The pandemic sped up this trend. This change makes the risk perimeter bigger. These days, sensitive systems can be accessed by mobile devices, home offices, and popular travel spots. In each of these cases, there are weaknesses.

Important Risks of Working from Home

Unsecured Networks: Wi-Fi networks at home and in public places may not be very secure.
Personal Devices: Family members or employees who use personal devices that are not managed might not have antivirus software or patches installed.
Credential Theft: Phishing and credential harvesting are two types of attacks that target remote logins.

Helpful Security Steps

Make sure that all remote logins use multifactor authentication (MFA). You can not just use a password to prove who you are anymore.
All outside connections must be made through encrypted VPNs or Zero Trust Network Access (ZTNA) systems.
With mobile device management (MDM), you can make sure that all devices have encryption, patching, and the ability to wipe them remotely.
Device Standards: Instead of letting employees bring their own devices (BYOD) without any management, give them company-owned hardware that is safe (with full disk encryption and required patching).
Check the logs for remote access to keep an eye on things and get alerts. Let us know about strange logins, like one from a strange country at midnight.

One IT framework [6] stresses the importance of "secure multi-device integration, ensuring seamless and protected access across devices and locations for family members and advisors." This really means making sure that laptops, tablets, and phones all follow the same security rules so that there are no holes in them.

A Useful List for CIOs

All systems must use MFA.
Get ZTNA or VPN software that can keep track of and log what happens.
MDM should be installed on all mobile devices that can access office data.
Check the logs of remote access every three months.
Tell employees and their families about safe ways to travel and how to use Wi-Fi at home.

Being Ready and Strong for Incidents

Even with strong defenses, no system is completely safe. For family offices to be resilient, they need to be ready for breaches and know how to respond.

Parts of a Program for Responding to Incidents

Written Incident Response Plan: Make sure that each of the following situations has clear steps for escalating: ransomware, insider breach, and vendor compromise.
Set Roles: Give people jobs like communications officer, incident commander, and contact person for police and regulators.
Tabletop Exercises: Do yearly simulations to see how ready you are.
Immutable Backups: Store encrypted backups off-site and check them every three months.
Communication Protocols: If necessary, write messages ahead of time for regulators, family members, and the general public.

Service frameworks recommend "automated backups and disaster recovery to ensure business continuity and ransomware protection" [6]. Testing is important because backups only work if they can be restored quickly.

Lessons Learned Reviews

After any event, no matter how small, do a post-mortem. Find out what went wrong, change the rules, and teach your employees what you learned. Incidents turn from pure risks into chances to make defenses stronger through ongoing improvement.

A Helpful List for CIOs and CEOs

Accept and follow an incident response plan.
At least once a year, practice a major event.
Ask for quarterly restore tests and backups that can not be changed.
Update your list of outside contacts, like law enforcement, regulators, and forensic firms.
Every year, look over the plan and make changes.

Other New Risk Areas

Insurance and Risk Transfer

Cyberattacks are becoming more common, which has led to more cyberinsurance. Policies should not take the place of core controls, but they can help move residual risk. Some common mistakes are:

Certain policies do not cover insider incidents or attacks backed by the government.
Conditions: Claims may be denied if baseline security measures like MFA and patching were not put in place.
Coverage Gaps: Policies may not cover damage to your reputation, but they might cover the costs of recovery.

For CFOs, it is important to think of insurance as part of a multi-layered defense. First, strict rules; insurance as a backup plan.

ESG, Reputational IT Risk, and Transparency

Family offices are getting more and more involved in ESG and charitable work. These actions make it harder to be open. But releasing ESG data, like carbon footprints and supply chain metrics, could show private business information.

If ESG reporting is not done right, it could accidentally show private information about operations, holdings, or family values. Cybersecurity is an increasingly neglected but very important risk area for making sure that ESG data is collected, stored, and shared safely.

Risks from People and Threats from Within

Harrington [3, p. 45] says that wealth managers often act as "inside outsiders," even though they are not officially part of families. This dynamic shows how dangerous insider threats can be:

Malicious Insiders: Employees or advisors who have special access to data and leak or misuse it.
Accidental Errors: Happen when well-meaning employees set up systems wrong or click on phishing links.

To lessen the effects, one must:

A full check of employees and vendors.
Dividing up tasks so that one person can not do both approvals and payments, for example.
Watching for strange behavior from users.
Continual learning about being aware.

Cross-border Compliance and Multi-jurisdictional Complexity

Family offices do business all over the world. Family members might live in the US, UK, or Middle East, and their assets might be in Switzerland, Singapore, or Dubai. This leads to overlapping compliance obligations:

Reports for CRS and FATCA.
GDPR and other rules about privacy.
Frameworks for KYC and AML.

Harrington says that one thing that makes wealthy families different is that they have to deal with a lot of different laws [3, p. 213]. Because of this, family offices need to stay on top of independent audits, centralized compliance calendars, and legal knowledge across borders.

Metrics and Reporting for IT Risk Maturity

Principals and boards need to be able to see IT risk. CIOs should include measurable KPIs in their quarterly reports, such as:

Time to find and fix problems in the meantime.
Percentage of systems that have been fixed within SLA.
Results of audits and penetration tests.
Completion rates for vendor reviews.
Taking part in incident simulation.

Risk dashboards that use a red, amber, and green format make it easy for CEOs and principals to see how much risk they are taking.

Long-Term Blind Spots

Even though people are more aware of IT risks, many family offices still have recurring blind spots. These blind spots often persist because they stem from cultural norms, assumptions, or governance deficiencies rather than solely technical deficiencies.

1. Laziness

A lot of people still think that smaller businesses are "too small to be noticed," which is a dangerous assumption. Cybercriminals actively look for smaller, more private offices because they think they are less protected. In reality, smaller businesses with a lot of money are becoming more and more the "soft targets" of ransomware gangs and financial fraud rings.

2. Supervision that does not fit together

IT, compliance, finance, and law teams often work on their own. Without a clear risk governance framework, exposures can get through the cracks. For example, IT is in charge of both cloud security and making sure that FATCA filings are complete. However, no one combines the two to think about how cybersecurity posture and regulatory disclosures might affect each other.

3. Differences Between Generations

Younger generations may prefer openness and transparency, while older generations may prefer privacy and limited disclosure. These cultural differences could cause policies that do not always make sense, like strict rules about encryption that do not match up with teens' excessive use of social media. Without clear digital rules for everyone in the family, privacy could be at risk inside the home.

4. Too Much Dependence on Others

Family offices often have a lot of advisors, trustees, and vendors. Outside knowledge is important, but it also creates dependencies that are not always monitored. If a well-known law firm or IT company has a breach, the family office could be at risk without any fault of its own. But a lot of offices do not have structured vendor monitoring programs.

5. Having a Second Reputation

Some offices still put financial performance ahead of reputational risk, even after public scandals like the Panama Papers. This does not show any planning ahead. In today's connected world, losing your reputation can lead to regulatory scrutiny, strained relationships, and a loss of trust. These things can be just as bad as losing money.

Helpful Ideas

The principals, CFOs, CIOs, and CEOs are the main people who make decisions in family offices. The following suggestions are meant for them. To make IT risk management a normal part of business and culture, everyone needs to do their part.

About CEOs

The CEO is in charge of governance in the end. Their job is to set the tone and make sure that risk management is a part of everything.

Things to Do:

Put together a committee that includes people from IT, compliance, finance, and legal risk management to set up unified risk governance.
Approve Policies: Read and sign written policies about privacy, AI governance, and cybersecurity.
Demand Dashboards: Ask for quarterly risk dashboards with measurable KPIs to make sure you have a clear picture of your IT posture.
Advocate Culture: Tell employees and their families that IT risk is a top priority, not just something that comes up later.

CEOs show that risk management is a top priority by being personally involved.

About CFOs

CFOs need to find a balance between investing in resilience and managing money. People often think of IT security as a cost center. CFOs can change it into an investment that protects against losing money and reputation.

Action Steps:

Include money for incident simulations, penetration tests, and monitoring tools in your resilience budget.
Calculate Financial Risks: Turn IT risks into estimated costs for fines, recovering from a breach, or downtime.
Look at your Cyber Insurance: Check to see if your coverage protects you against cyber risk as part of a multi-layered defense.
Determine the ROI of Modernization: Demonstrate that updating old systems reduces risk and makes operations less efficient.

CFOs should think of IT risk as a financial issue that has to do with protecting value and avoiding costs.

About CIOs

CIOs are responsible for putting IT security plans into action. It is their job to turn governance into controls that work.

Things to Do:

Use Frameworks: Make sure your operations are in line with NIST CSF and ISO/IEC 27001.
Update Infrastructure: Get rid of old systems and use penetration testing to make sure that all cloud migrations are safe.
Vendor Oversight: Keep a correct list of vendors and make sure that access controls are strict.
Monitoring and Metrics: Set up key performance indicators (KPIs) like the average time it takes to find and respond to an incident, deploy SIEM, and find endpoints.
Train Staff and Family: Give both family members and professionals training on how to be aware of security issues.

By organizing controls, CIOs build the technical foundation of resilience.

About HNW Principals

Both trustees and family members need to be disciplined online. What they do, especially on social media and personal devices, can make office-wide procedures stronger or weaker.

Things to Do:

Secure Personal Devices: Make sure that all of your phones, tablets, and laptops have encryption and two-factor authentication turned on.
Minimize Digital Exposure: Do not share too much on location-based apps and social media.
Attend Briefings: Go to regular events that raise awareness about new dangers.
Ask for Openness: Get answers from office managers about IT rules, audits, and how to be ready for incidents.

The principal sets the cultural norm. Their commitment shows employees that taking care of money is closely tied to protecting IT security and privacy.

To Sum Up

Family offices today have to deal with a world that is very different from the one they used to live in. The realities of a digital-first world have changed their original goals, which were to save money on taxes, protect their wealth, and keep things private. It is no longer enough to use private service providers and hidden structures to keep things private. It depends on how strong the IT systems are, how well the government works, and how well each family member pays attention.

Key Points

Cybersecurity serves a strategic purpose: It is a problem for boards, executives, principals, and IT staff. Using well-known frameworks like NIST CSF or ISO/IEC 27001 gives you structure and discipline. Automated audits, penetration testing, and ongoing monitoring are necessary, not optional.
Privacy is fragile in the digital age: Confidentiality used to be protected by secrecy, but now it needs to be actively managed through data minimization, audit trails, encryption, and teaching families about it across generations.
AI has both good and bad sides: Predictive analytics and anomaly detection can help with cybersecurity and decision-making, but using AI without permission or in a way that is not well-regulated can lead to regulatory liabilities or the loss of sensitive data. AI needs written rules, vendor vetting, human supervision, and audits.
There is no way to negotiate modernization: Legacy systems that are not patched or supported are a huge risk. Cloud adoption improves scalability and resilience, but requires testing, contracts, and careful setup.
Third parties and vendors increase the attack surface: The fact that 80% of organizations report breaches through their vendors [4] shows how important structured vendor governance is.
Remote and hybrid work: Requires secure collaboration tools, endpoint management, and strong authentication — along with family awareness of safe practices.
Cultural resilience is as important as technical resilience: Communication protocols, immutable backups, and tested response plans protect both data and reputation.

A Look at Strategy

In the next ten years, businesses that see IT risk management as an important part of stewardship will do well. Family offices must now include cybersecurity, AI governance, and privacy in their very foundation, just like they did when they first started combining tax planning, asset management, and legal structuring.

This needs someone in charge. CEOs are in charge of making the rules and setting the tone for the company. CFOs must assess risk in financial terms and evaluate financial resilience. CIOs need to put in place technical frameworks and keep an eye on vendors. Principals must embody digital discipline.

Harrington's ethnographic research reminds us that rich families are often "fragile organizations" that need outside administrators to keep things running smoothly [3, p. 42]. In today's world, these administrators are just as likely to be CIOs and cybersecurity experts as they are to be trustees or tax planners.

You do not have to be the richest or the most technologically advanced to get by in this world. It has to do with how responsive you are. Harrington says that "not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change" [3, p. 212]. Family offices will protect their assets and reputation for future generations if they see IT risk as a strategic necessity and take steps to deal with its problems before they happen.

Endnotes

Brooke Harrington. Wealth Managers and the One Percent: Capital Without Boundaries. Harvard University Press, 2016, pp. 491–499.
Marsal & Alvarez. Poll on Risk Management and Governance in Family Offices. 2022.
Harrington's Capital Without Borders, pp. 42, 78, 213.
Security Scorecard Research. Worldwide statistics on third-party breaches. 2021.
The International Organization for Standards (ISO). ISO/IEC 27001. 2013. Information Security Management Systems.
Documentation for private IT services. Service descriptions for updating, improving, and protecting operations. 2023.
The National Institute of Standards and Technology (NIST). Framework for AI Risk Management (AI RMF 1.0). 2023.