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  • Writer's pictureruth322

Shielding wealth and legacy: Insurance protection for family offices

A family office is a bespoke wealth management entity that exists to meet the diverse needs of high-net-worth individuals or families. Typically, their services encompass investment management, financial planning, tax optimisation, estate planning, and much more. The primary goal of a family office is to grow and preserve wealth across generations. These offices often operate with a heightened level of complexity, as they must cater to the unique objectives and circumstances of their clients. Like any company, family offices are not immune to risks. In this article, we delve into the inherent risks associated with family offices and explore the types of insurance protection they need to secure their clients' legacies and financial interests.

As family offices provide professional services that include fiduciary care, they need to be protected for their fiduciary liabilities. The common fiduciary liabilities include:

  • Duty of care: in managing the financial assets and investments of their clients. This includes making informed decisions and regularly monitoring the performance of investments.

  • Confidentiality and privacy: Family offices are privy to sensitive financial and personal information. They are obligated to maintain the confidentiality and privacy of this information, and any breach of confidentiality can result in legal consequences.

  • Record keeping: Proper record-keeping is essential to demonstrate compliance with fiduciary duties. Failing to maintain accurate and complete records can result in liability, especially if disputes or legal actions arise.

  • Compliance with laws and regulations: Family offices must comply with all relevant laws and regulations, including those related to financial management, investment, and taxation. Non-compliance can result in legal consequences.

When family offices breach their fiduciary duties, they may face legal actions in the form of lawsuits from clients or regulatory penalties. Insurance is a crucial way for family offices to protect themselves from the financial and legal consequences of these liabilities.

The key insurance coverages applicable to family offices are Directors & Officers (D&O) insurance and Professional Indemnity (PI) insurance.

Directors & Officers insurance

This protects the personal assets of the directors, officers and senior management of the family office and investment vehicles in the event of legal claims or lawsuits alleging wrongful acts in the management and decision-making of the office. In other words, it covers the family office in case of breaches in their fiduciary duties as a result of wrongful acts by management. Not only does this policy cover lawsuits, but also regulation investigations of the individuals. A key thing to note is that lawsuits brought against the directors by other directors of the family office will not be covered.

Professional Indemnity insurance

PI insurance protects the family office in case of errors, omissions or mistakes made by the family office in its services. This can include errors in the areas of financial advice, investment recommendations, tax planning, estate planning, and other areas where the office provides expertise. The insurance provides legal defence coverage for the lawsuits and investigations.

Do you need to get both insurance covers?

This depends on the setup and complexity of the family office. Single Family Offices (SFOs) are typically owned by and serve the financial needs and wealth management of a single high-net-worth family. Due to the high level of control and ownership, it could be sufficient to just have a D&O policy in place. In the case of Multiple Family Offices (MFOs), they serve the financial needs of more than one high-net-worth family and are usually set up as an independent entity separate from its client families. PI insurance becomes critical for MFOs as they have the risk of being sued by their clients for alleged errors or omissions. MFOs would likely need to have both D&O and PI coverages in place.

There are a rising number of insurance packages in the market designed for family offices. It’s important to speak to an experience broker such as Anapi to discuss the structure of the family office and the specific risks they have. Get in touch with us to see how we can tailor the right coverage for your family office.

Image credit: Freepik

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