Family Offices Face Growing Risks, Need Stronger Governance

Family offices, which oversee the financial affairs of the world's wealthiest families, managed a collective $5.5 trillion in 2024 and are projected to manage $9.5 trillion by 2030. These entities, with assets spread across trusts, partnerships, and operating businesses, are increasingly exposed to fraud risks from both third parties and insiders.

An analysis by Alvarez & Marsal emphasizes the critical need for family offices to establish clear governance frameworks and internal controls to mitigate these risks and safeguard wealth. The report draws, in part, on the firm's experience investigating a $45 million embezzlement scheme perpetrated by a longtime family office employee.

The foundation of effective governance lies in clarity regarding roles, responsibilities, and decision-making processes. Implementing a clear governance framework, including a family constitution, defined committees, and clear operational guidelines, helps prevent internal disputes, conflicts of interest, and third-party risks. Regular risk assessments are also crucial to stay abreast of changing technological, regulatory, and geopolitical landscapes.

The report notes that while most family offices report having established or are establishing clear processes and internal controls, only half have a governing board, and just over a third maintain a formal risk-management plan. Family offices should also incorporate robust plans for conflict resolution, succession planning, and cybersecurity to ensure long-term stability and wealth preservation.