Director - Family Office
Stonehage Fleming offers a full Automatic Exchange of Information (“AEoI”) consultancy service, encompassing both the US FATCA (“FATCA”) and OECD Common Reporting Standard (“CRS”) regimes, to client families in respect of their fiduciary structures and financial services firms including private banks, investment managers, trustees and other fiduciaries.
The financial affairs of wealthy client families are frequently subject to intense scrutiny from tax authorities. The information which must now be reported by financial institutions of all types, including fiduciary services providers, and exchanged between jurisdictional tax authorities may trigger a request for further information, or even a full tax enquiry.
The rules that drive who is reported, and the financial information concerning deemed financial accounts attributed to them, are complex and frequently encompass individuals who have no right or entitlement to the assets to which those deemed accounts relate. Duplicative reporting in respect of the same individual and accounts, submitted by different financial institutions, is a frequent occurrence.
Our AEoI Consultancy Service provides a clear and easy to understand analysis of the reporting impacts of the FATCA and CRS regimes on a fiduciary structure.
This analysis details who will be reported, what will be reported about them, by whom, to which tax authority and when and encompasses all the entities which comprise a fiduciary structure, regardless of whether Stonehage Fleming administers those entities, or not. In addition we can, if required, extend such a review to include assets held in a personal capacity.
The major benefit of this analysis is that it provides certainty about, and advance notice of, the reporting flows and the content of that reporting. In turn this means, for example, that the necessary paperwork to respond to an enquiry from a tax authority, should one be forthcoming, can be gathered and collated well ahead of this being received.
We can assist private banks, asset managers, fiduciary service firms and independent trustees with the complexities of maintaining fully compliant arrangements with regard to their ongoing obligations in respect of the AEoI.
We will review the adequacy and effectiveness of the implementation of FATCA and CRS requirements. In particular we focus on the arrangements and approach to:
The outcome of the review is documented in a clear and concise report, which contains recommendations for correcting any deficiencies identified. If required we can assist with the implementation of any recommendations made, draft policies and procedures, as well as providing training to staff to the extent necessary.
Stonehage Fleming can prepare and submit FATCA and CRS reports to the respective tax authorities through our in-house reporting software solution hosted in Switzerland. This includes:
For more information please contact our AEoI Consultancy team.
Many wealthy individuals, particularly successful entrepreneurs, reach a stage when they might benefit from the services of a family office. Their affairs become so complex and their transactions so numerous that they need an individual or team to keep on top of it all, to handle day to day matters as they arise, conduct necessary research, and brief them on the background when decisions are required.
They may wonder how the service of a family office differs from that of a typical wealth manager? The clue is probably in the name, in that the family office is at least as much focused on the family itself, as it is on the wealth.
The ‘family focused’ approach recognises that the long-term preservation of wealth, across generations, is far more dependent on the family itself than on professional advisers and that engaging family members in the purpose and process of stewardship is a crucial ingredient of the service.
Equally, just as the family impacts on the wealth, so the wealth has a deep impact on the family and family members. There is little point in creating and handing on wealth if it does not help those who inherit to have fulfilling as well as prosperous lives.
So part of the reason for a family office is to integrate a plan for the management and administration of wealth with a plan for the family succession, which usually includes collective agreement on the purpose of the wealth and key objectives. It also includes family governance, essentially the framework for decision making, leadership and family communication. This is designed to unite the family in common purpose (as regards assets they collectively own), to help reconcile differences of view and minimise the potential for dispute.
In every family there will be some members who are actively interested in and motivated by the opportunity to manage and create wealth and others for whom wealth is simply a means of funding their lifestyle, thus being more inclined to rely on professional advisers. These differing perspectives need to be reconciled, which can have a major bearing on decisions concerning family assets.
The family office role thus demands deep knowledge and understanding of the family, as well as the assets they own and expertise across all aspects of their affairs, sufficient to contribute to high level decisions. For larger ‘multi-family’ offices, they will also contribute great practical experience drawn from other families going through similar circumstances.
But this is only part of the reason for having a family office.
Apart from the significance of the word ‘family’, the other word is ‘office’.
The need for a private office can simply reflect the number and complexity of tasks to be undertaken and decisions to be made, bearing in mind that many of these decisions cannot be taken in isolation, and require the input of someone with detailed understanding of the broader picture.
Many entrepreneurs have numerous investments and ventures, perhaps held through different holding entities, with complex tax issues and sometimes quite sensitive family considerations. There comes a point when it is almost impossible to carry all the necessary background in your head and the need arises for more disciplined and well-structured processes and record keeping, supported by an individual who understands all the issues.
He or she must be able to identify problems, offer opinions and bring a degree of expertise and experience. In some cases, such an individual can become indispensable, allowing the entrepreneur to focus on his or her core activity, without having to worry continually about the details of their financial and family arrangements. Crucially, such an individual also gives peace of mind to those who are concerned by the prospect of an unexpected event leaving their spouse or children with a complex financial situation, of which they have very limited understanding.
Overlaying this, some aspects of the arrangements may demand significant professional input and the family office procures such input either from within its own professional staff or from an external firm.
It is this combination of managing family arrangements, providing expert administrative support, and bringing high levels of technical expertise and experience, that make the family office highly valuable and very different from a typical wealth manager.
The precise needs of an individual or family vary enormously, depending on circumstances. For example how large or complicated is the family? What is the mix of assets and how are they held, in which countries? What are the capabilities and objectives of family members and how is this likely to change in the future? To what extent are they primarily looking for administrative support and technical advice or do they also want someone who really contributes to major decisions and long-term strategy / succession?
Only after addressing all these issues is a family able to begin considering what sort of family office they require. The most important decision is whether to have their own dedicated family office (single family office) or to find a so called ‘multi family office’ which operates as a commercial business, serving a number of different families. In some cases a combination of the two may be appropriate.
The functions of a family office are, by definition, many and varied, to meet the needs and preferences of the particular family:
A family office always provides extensive administration and reporting, which may require a sophisticated operating platform, depending on the nature of the family assets and structures.
This can cover numerous trusts and companies, bank accounts, investments, commercial ventures, properties, art collections and leisure assets. In many cases, the structures, the assets and the family are spread across a number of different countries, which adds to the complexity and the need for tax and legal advice to be followed meticulously in every movement of assets.
The family office will usually have responsibility for operating family governance, ensuring a proper framework for making decisions, arranging and facilitating family meetings, and organising family communications, which will include trustees, directors, and professional advisers, as well as family members. This is far more than an administrative task, as it involves proposing and agreeing the agenda, providing relevant information and analysis, obtaining and interpreting professional advice, prior to the meetings, often helping to resolve differences of view.
Nearly all family offices are directly responsible for the management of liquid assets, such as cash and investments, although the day to day running of portfolios is often outsourced to professional managers. The investments may include private equity holdings, both directly held and through funds, so it is common for family offices to have an in house private equity or corporate finance team.
For those who have a family business, the family office will also play a role in helping to manage the relationship between the family and the business and, in particular, ensuring the interests of all family shareholders and beneficiaries are properly considered, when major decisions are taken.
Residential and commercial property have always played a central role for most families and the management of art collections has become an increasingly important function as the value of the art has grown. Many families also own boats, aircraft and other leisure assets.
Recognition of the need to focus more formally on their contribution to society has increased emphasis on philanthropy and impact investing, both of which also play an important role in passing down values from one generation to the next and helping to shape the family culture.
Some families are very active in terms of regular transactions involving commercial ventures, property, art and leisure assets, and their family offices must be equipped to manage these transactions, including appraisals, diligence, structuring and funding.
Overlaying all the above, will be tax planning and coordination of advice, which is an ongoing process, as tax will probably have a bearing on nearly every substantial transaction.
A sophisticated family office will operate a framework for risk management across the spectrum of the family’s affairs, including risks arising within the family as well as risks attached to particular assets. In the current environment, there is increasing focus on reputational risk and cyber security.
They will deal with the implications of all routine family events, such as births, marriages and deaths and may play a key role in the event of family disputes, divorces and other problems. This deep and often sensitive involvement in personal issues means they develop and very close understanding of the family itself, which is extremely helpful in their guardianship of the family wealth.
Finally, the family office will normally be involved in all strategic reviews and major decisions and may play a leadership or facilitation role. This will nearly always include developing and implementing plans to pass the legacy to the next and subsequent generations, which is arguably the most important component of long-term wealth management.
The main advantage of the dedicated, single family office is direct control over the staff, who are entirely focused on the affairs of one family, free from the inevitable conflicts of serving other families or pursuing the corporate objectives of a commercial business (including targets etc). It should therefore be hoped that any advice received is unbiased and that the office will be flexible enough to respond to the changing needs of the family at any given time.
Privacy is also a considerable advantage, with sensitive information confined to the minimum possible number of people, all of whom are directly known to and employed by the family itself. Given concerns about data security this is an important factor for some families.
Finally, the single family office is usually not subject to regulation, which is an increasingly cumbersome and expensive burden for commercial providers.
These advantages can be of great importance to a family, but need to be weighed against the fact that depending on size of assets, they may not have the economies of scale of a commercial operation. In addition, there are a number of other attractions of going down the ‘multi family office’ route, or indeed of finding a compromise between the two.
In theory, the main advantage of the multi family office (MFO) is that it has the economies of scale, and hence can offer a more sophisticated operating platform, much greater diversity of expertise and invaluable practical experience of other families, addressing similar issues.
The complexities of managing wealth in all its forms have increased dramatically over the last decade and require increasing input from specialist advisers. Having extensive expertise ‘in house’ can thus be much more effective in ensuring the correct advice is always sought and applied. In some cases they can apply the same advice across a number of families, also reducing costs.
For potential clients, the practical experience of other families is among the most attractive features of a multi family office, in that they are usually keen to learn how other families have dealt with similar situations and what lessons have been learnt.
The operating platform is of particular importance for those with diverse assets and holding structures, as it enhances efficiency and enables flexible reporting tailored to particular circumstances.
Finally, a further advantage claimed by MFO’s is that they provide a more attractive career for staff seeking the opportunities of a more commercial environment. They are hence better placed to attract and retain staff of the quality required and less dependent on a single individual.
Whilst the above advantages can be claimed in theory, the practice is that most MFO’s are quite small boutiques with perhaps only 30 – 50 staff in one or two locations, and a relatively small number of client families. Such ‘boutiques’ are limited in the expertise they can carry and in their international representation. They hence tend to focus on certain types of families with limited needs, some of them, for example, primarily focusing on the management of liquid assets, rather than the broader wealth of the families they serve.
For international families with a wide variety of assets, held through multiple structures, the future must be for larger, more international MFO’s, which can genuinely meet their needs. This means being able to add value across the totality of their affairs, but nearly always working in partnership with other professional advisers.
In general, the wealthier the family, the more likely they will want their own dedicated family office, especially to deal with more personal family issues. However, it is now common for such families also to use a multi family office, for aspects of their affairs which will benefit from greater economies of scale, access to a broader range of expertise, capabilities in a number of geographies and a more sophisticated operating platform.
Deciding on the need for a family office service is typically driven by the realisation that day to day management of the family’s affairs is becoming a task which exceeds the capacity of a single individual family leader, without restricting their involvement in other matters (such as running the family business). This often coincides with the wish to begin involving the next generation, which also increases the need for more formal decision making processes and family communication.
The very wealthiest families will nearly always want their own, dedicated family office, but quite frequently combine it with using selected services of a MFO or International Family Office to access its broader range of expertise and operating platform.
For all families, the decision about which type of family office must start with a thorough and frank appraisal of the family’s principal needs. They should think very hard before putting in place an expensive bespoke operation, if they can find a multi or international family office which already has the infrastructure, expertise and experience to meet their needs more effectively.
Data now shows that over the long-term, a good private equity portfolio outperforms public equities, and for most wealthy families there is no substitute for a well selected group of private equity funds as an entry point to this asset class. In addition, wealthy families with entrepreneurial backgrounds are increasingly seeking direct private equity investments and looking for co-investment opportunities with other families or institutions.
However, the risks can be very high and the practical obstacles much more substantial than is often appreciated. This paper explores some lternative approaches.
Over the last five years - effectively in the aftermath of the “credit crunch” – the market has seen a significant growth in the appetite of wealthy families and high net worth investors for directly held private equity investment. In some cases this is driven by an underlying entrepreneurial confidence and experience in a family’s background, and the prospect of a more exciting return than from portfolio investing. It can complement, or be instead of, investing through funds.
There are a number of factors behind this increased, but in many cases quite generalised, desire to access direct private equity investments. They
include the growth in numbers of ‘super wealthy’ families globally, driven by entrepreneurial activity and some mistrust in the investment community in general and in fund structures in particular. Many believe their direct business experience gives them an advantage over the professional investment community and that they can take a longer term view, working with other families to share ‘offmarket’ opportunities.
Hence many wealthy families and family offices are attracted to the concept that they can bypass the investment community and do their own thing,
investing directly in private businesses and new ventures, often with a controlling interest.
However in many cases the appetite is just that - and has not been satisfied due to the myriad of difficulties in accessing opportunities and finding the correct structures and relationships to invest successfully. Families looking to make such investments face a number of real hurdles:
For all but the very richest families, the amount they can commit to a single investment is limited and this may restrict them to relatively small, early
stage companies, unless they can work with a number of co-investors.
The need to make smaller investments can cause too much concentration at the high risk end of the market, especially relatively young companies
and even start-ups. Investors are often excited by the prospects of early stage businesses; in many cases this is in stark contrast to the experience and expertise of that family and the way they made their original wealth. Such investments may start as a relatively small exposure but they invariably require several further rounds of financing, often without shareholder rigour to make the difficult decisions and management changes that are so often required.
Professional private equity managers normally employ a team of at least 6 professionals to identify and appraise opportunities, negotiate deals and manage the portfolio. Typically a private equity fund would look at around 100 projects or companies for each one it invests in and that is just
the beginning of the work. Negotiating the deals requires an immense amount of time, experience and expertise and, in any portfolio, at least 30% of
the investments are likely to have problems which require significant attention, with the possibility of further funds being required and / or terms
being renegotiated. Even successful investments require significant time and attention to ensure management teams remain on track and exit
returns are maximised.
Most family offices do not have a team of sufficient size or specific experience to manage a portfolio on that basis and hence operate a more opportunistic model, often selecting their investments from a far smaller sample. They may feel that they can operate on this basis because they have greater business and / or sector expertise or better contacts than a private equity house and hence are introduced to better quality opportunities from which to choose. This, however, is highly debateable in most cases. Perhaps more credibly, they may have specialist expertise and contacts in areas related to their core business, which may give them significant competitive advantage. This is probably the most persuasive
argument for direct investment by families, but this has the obvious downside of increasing sector concentration.
Most wealthy individuals or families thus tend to concentrate investments quite narrowly rather than building a well-diversified portfolio. In one
sense they are managing their risks by investing in areas which they fully understand, but on the other hand they are exposing themselves to a downturn which hits one or two sectors as a whole.
The costs and risks of running a sub scale private equity operation can be very substantial and seriously erode returns. While investors often decry the ‘2+20’ fee model of most private equity funds, the real cost - even before the investment performance - may be just as high or higher within
a family office if it is sub scale.
For cost and other reasons, families tend not to have the formal structures, processes and disciplines employed by commercial private equity
firms. This can lead to short cuts, inadequate due diligence, monitoring and decisions which reflect the interests of the decision makers (often one or more family members), rather than the interests of all beneficiaries. We have seen several cases of poor decisions being made by existing family
office shareholders, especially to maintain a past valuation that is patently too high, perhaps to save face. Taking a long-term view is one thing - ignoring the reality of a problem situation can cause losses to increase.
For similar reasons, monitoring and reporting is often inadequate such that problems are often identified and therefore addressed too late.
Unsuccessful private equity investments are one of the most common causes of family conflict between those directly involved and the more passive
family members, especially where governance and reporting are lacking.
Co-investment with other ‘like-minded’ family offices is increasingly seen as the solution to many of the problems listed above. Some of the benefits
However, the reality is that far more families talk about such co-investment opportunities than actually participate. The reason that theory is
not always converted into practice is down to the significant levels of trust required to enter into these type of deals.
Building sufficient trust and mutual respect to invest in each other’s deals can take many years to achieve. Indeed it is far more likely that such
relationships exist between families operating in the same business sector, where they have direct experience of each other, whether as partners or
Those who seriously want to consider coinvestment thus need to focus on how to build and maintain that trust, which not only gives them the
confidence to invest in a deal outside their own area of expertise, but in an investment which is led by a family of which they have no previous
business relationship. Furthermore, as is the case with all private equity, it must be understood that some investments will go wrong, however expertly conceived and implemented, and the relationship of trust must be able to survive some early mishaps and some difficult decision making discussions.
It is thus not sufficient to simply build the trust required to make the first investment. It is critical to ensure that properly defined structures are
in place, with clearly defined responsibilities and accountability to resolve amicably and professionally any problems which may arise after
the investment is made. The issue of fees is likely to cause friction too - few families will feel it is reasonable for them to be the lead investor on a
deal and receive no remuneration for that role.
We have seen this left imprecise at the outset of a co-investment and then develop into a more toxic issue among the investors. Perversely we have
even seen some family investment “clubs” reinvent a similar structure and fee basis as the institutional private equity industry, even if from a different
The keys to maintaining trust, even when things go wrong, are often more formal and accountable structures. However, the problem is that, as the
process becomes more formalised, so a family office or high net worth individual can tend to see this as just another form of restriction and structure
they would prefer to avoid.
There is a variety of ways of finding and maintaining co-investment partners, from using a family’s own contacts and networks to find partners for
individual transactions on a case by case basis, to the more structured and formal approach of joining a ‘club’ or participating in a fund.
This will depend on informal relationships with other families, probably built up over many years. The advantage of this approach is that it is very
flexible and no substantial costs are incurred until a specific transaction is under consideration. The disadvantages include:
Some families are attracted to the concept of a coinvestment ‘club’, which has been established to bring together a number of families for the purpose of co-investment. At one end of the spectrum, some clubs are entirely informal with no rules or obligations, where the object is purely to provide a forum for families to meet and show each other their deals. Other clubs do have rules and often carry a clear obligation to participate in some if not all the deals undertaken by the club as a whole.
The dilemma for a club is that it does not want members who are there primarily for market intelligence purposes, but are unlikely to invest in
practice. On the other hand, it would be extremely difficult to form a club where each member was required to participate in every investment.
Those clubs which require more commitment tend to be for property investment rather than trading companies. Some, for example, require each member to participate in at least one deal in every three, or their membership will be revoked. In another case Sure Investments run a property
club where, rather ingeniously, each member must participate in every deal but has the opportunity either to double or to halve their allocation, the
result being that if more members wish to scale back than scale up, the investment cannot proceed.
There is one stark disadvantage to investing in these structures. In the competitive and dynamic private equity market globally, the ability to speak for the entire investment funding “cheque” is perhaps one of the most powerful advantages an investor can have. Many of the discretionary investment clubs have struggled to overcome this handicap - they are often seen by savvy sell side advisers and management teams and vendors as second class buyers. To secure investments they are thus faced with either paying materially more than the funded buyers, or investing in opportunities that hang around the market long enough to enable the club to raise money from its members. The bigger the ‘club’ in terms of numbers of members, the worse the issue. A small club of 3-5 investors can get close to overcoming this issue - the larger clubs usually cannot. The smaller ‘clubs’ may even be able to get one of the investors to underwrite an investment, which obviously solves the problem.
In one sense this is the tidiest solution with several family offices joining together to create their own private equity fund, with its own purpose built management structure. Such a fund would obviously be set up within an appropriate structure and governance framework. For many families, however, this does not give them the independence and control they require, and feels like they are back into the fee and control issues they are trying to avoid.
This is a topical and interesting route, and one that is developing fast at present. It involves family office accessing co-investment led by an institutional private equity manager (commonly referred to as GPs or General Partners). Why would GPs offer out co-investment opportunities? GPs do this to access more capital for larger deals, but more often they are forced to offer this as “bait” to attract the investor into a fund structure. Increasingly GPs see they must offer investors this top-up facility where the investor puts an amount into the fund structure, at full fees, but expects to be offered coinvestments allowing them to invest an additional 25-50% of this commitment as a co-investment at no fee. This way the investor averages down fees and gets the opportunity to “bespoke” an element of its portfolio.
We are aware of a few large and sophisticated family offices which have used this route as the entry point to co-investment. As all deals are managed by a GP, there is little / no risk of an orphan asset (without a GP to manage it), they have all been through the normal rigorous due diligence process and the GP will almost certainly have had sufficient capital to underwrite the deal - so avoiding being the “second class buyer”. It does not get close to scratching that entrepreneurial “itch” some family offices have, but it is a good way to build expertise and contacts. For a family with little experience of private equity investing, such co-investing can be a good low risk “training course”.
The key downside here is that the investors need to have a significant programme of fund commitments to build such relationships with GPs. And very small investors in funds will by implication have less favoured status in the fight for co-investment, unless the investor can convince the GP that it brings special knowledge to the situation.
This esoteric term refers to private equity firms/ teams that do not have a fund from which to invest. The credit crunch and its aftermath has roduced
a number of these, and they raise money for each investment on a case by case basis. To be clear they only do this because they cannot raise a fund - but they make a virtue of the co-investment process to attract precisely the family office investors that we are discussing here. They have had some success doing this, and will have more professional processes than most families or “clubs”, but they will remain subject to the second class buyer problem, as most advisers will know they do not have discretionary funding. The better fundless sponsors will move as rapidly as they can to raise a fund, so the remaining ones could be seen as managers that are not successful enough to do so.
Fees for these deals are lower than on fund terms, but will probably be somewhere around the 1% pa management fee, with a carried interest harge of somewhere from 5-20%. Carried interest structures can be more creative and ratcheted than in a fund, often to the benefit of both GP and investor, although it can have the effect of focusing the GP on taking excess risk to achieve an outperformance ratchet. One of the bigger risks is that the fundless sponsor collapses and the team breaks up as it doesn’t have sufficient income (without a fund) to hold together. The investments may then become “orphans” without clear direction and the investors may have to find a new manager.
The alternative, for those who wish to invest directly, is to seek an adviser who has the experience, resources, infrastructure, network and deal flow to address many of the problems mentioned above. The challenge here – and it is a considerable one – is for the adviser to have a business model which brings reasonable alignment of interest with the client, rather than being incentivised primarily to ‘sell’ the deal. The key to this is a long term,
more broadly based relationship of trust and a remuneration structure which ensures the adviser is not tempted to endanger the relationship for the
sake of a single transaction. He or she can also be relied upon to advise throughout the investment period if required.
Few corporate financiers are well placed to do this and few have the experience and skill set which includes portfolio management. However, a well positioned adviser can add considerable value and is sometimes able to bring together co-investors in a way that suits the objectives of both the investors and the investee company.
The private equity class is high risk - seductively attractive from afar but difficult to access and even more difficult to do well in practice. The, maybe
understandable, emotional backlash to funds and fees post the credit crunch has in our view bred a rush to direct investment, in most cases
by families without the expertise, contacts and structures to manage a meaningful private equity portfolio. There is no asset class with quite such
a variance between the top quartile and bottom quartile funds - when private equity goes wrong it can go very wrong. For this reason we believe
families need to think very hard about their real motivation for trying to do direct deals, and to rationalise their strengths and weaknesses before
making any steps to source such deals. Of course there will always be some families that can do this well - either with such critical mass, or expertise, or with a talented in house team or a trusted adviser - but the experience of the evolution of the private equity sector suggests there will be some serious casualties along the way.
Encouragingly, we are starting to see some larger families taking a much more thoughtful approach and not rushing straight into direct investing. This includes realising that the family needs to develop its network and expertise first, in many cases by making a small number of “fund” commitments to create strong relationships with established players in the favoured market and accessing lower risk coinvestment
opportunities as a first step. Over time that can be extended to backing “one off” deals and even taking a lead investor role, if confidence
and experience is sufficient.
Each family also needs to think very hard about its internal governance. It is often highly desirable for an experienced outsider to chair an investment
committee and create a firebreak between any family members that have excessive power over new investments, and multiple beneficiaries. In
one instance we have seen one very wealthy family move to institute a policy of excluding any investment sourced through the family members
(one of the supposed benefits of this direct investing route) due to the internal controversy and waste of executive time these ideas were creating.
The good news is the relatively immature private equity sector is maturing to see families as an important and interesting investor base that can
in many cases bring more than just money to the table - and therefore the prospects are good that over the next 5-10 years there will be the
opportunity for sophisticated and patient families to create routes to direct investing that minimise risk and create real long term value for their family
members. It might look less interesting than investing in an exciting looking start up - but it will almost certainly produce better returns and cause
a lot less disruption within the family office.
91% of cyber-attacks still start with a phishing email ¬– a fraudulent email designed to obtain sensitive information, deliver malware or extract payment ¬– and they are becoming increasingly targeted, sophisticated, and harder to detect, according to Roddy Priestley, Director of Cyber Security at global risk management consultancy, S-RM.
“We have seen a shift in the way that hackers approach an attack. They are patient and persistent in their approach to stealing data.”
“They build a profile around a target, looking at social media, the news and information on Companies House to understand their working and personal habits,” he told delegates at our 2019 Next Generation Seminar, hosted by Matthew Fleming, Head of Succession and Governance. The seminar – focused mainly on family, communication and governance - takes the opportunity to engage with the next generation of our client families and open their minds to the challenges and responsibilities they are likely to face, including the more practical issues surrounding wealth.
A successful phishing email is unobtrusive, authoritative, and appears to come from a reputable source. Often hackers will instil a sense of urgency in order to prompt their target to act. “We want to lift the veil on how a hacker thinks and understand the psychological tools they might look to exploit their victims sensitivities” explained Roddy.
“Understanding what they are trying to achieve at each stage of the cyber-attack will ultimately reduce risk.”
Roddy brought one of S-RM’s team of ‘ethical hackers’ with him, James Jackson. It is James’s job is to legally exploit vulnerabilities in systems for businesses and private clients, then recommend taking remedial measures to prevent cyber-attacks. During the seminar, James carried out a live hack, demonstrating to guests the process of information gathering and highlighting the level of sophistication a phishing attack requires.
Roddy added, “It is effectively impossible to be 100 per cent secure. We don’t talk about how to make things impenetrable, but how to make the level of sophistication and resources required by the hacker so high that you will not be a target.”
People are inherently trusting, explained Roddy, so a healthy dose of scepticism is a good thing when protecting yourself against cybercrime. He offered some simple tips: be wary if someone contacts you unexpectedly, don’t be pressurised into taking urgent action or giving confidential information. Be vigilant with security, setting up encrypted passwords and multi-factor authentication will deter hackers. “There are often tell-tale signs and common methodology behind attacks. At each stage there are things you can do to defend yourself,” said Roddy. In short, he warned: “Be suspicious.”