Shielding Prosperity: The Essential Role of Insurance in Protecting Family Offices

5-minute read

It’s an easy scenario to imagine: A family office, entrusted with managing millions in assets and sensitive personal information, falls victim to a sophisticated cyber-attack.

The breach is orchestrated by a network of cybercriminals who manage to infiltrate the office's secure systems through a phishing scheme targeted at one of the office’s junior financial analysts.

The attack goes undetected for weeks, during which the hackers gain access to confidential data, including bank account details, investment portfolios, and personal information of the family members.

Nightmare, right?

How to ensure your family office is properly insured, including a robust cyber policy as well as coverage for directors and officers.

How about this, then? An experienced investment manager in a family office, overseeing a significant portion of the family's portfolio, makes a critical error.

Believing in the potential of a new, untested market, the manager allocates a disproportionate amount of funds to this venture.

Unfortunately, the market takes a nosedive because of unforeseen geopolitical tensions, resulting in a dramatic reduction in the portfolio’s value.

Family offices, given their pivotal role in managing the wealth and affairs of high-net-worth individuals, navigate a landscape riddled with these and other unique and complex risks. Neither of the above scenarios is as rare as we’d like to think. Fortunately, both can be addressed with the right insurance policies in place.

Cyber Liability Insurance

Let’s start with cyber liability insurance, which, among other things, will cover the costs related to managing a data breach, including crisis management, public relations, and notification expenses.

A cyber policy also covers cyber extortion costs, protecting you against losses due to ransomware or other such schemes.

The right cyber policy does something else for family offices: It covers the loss of income resulting from a cyber-attack that disrupts the family office’s operations.

Professional Liability Insurance

For family offices, the importance of Professional Liability Insurance, also known as Errors and Omissions Insurance, cannot be overstated.

This insurance protects against claims arising from errors, omissions, or negligence in professional services provided to clients.

Given the high stakes involved in wealth management and advisory services, a single mistake or oversight can lead to substantial financial losses for clients, which in turn can result in costly lawsuits.

The key coverage elements of an E&O policy:

Legal Defense Costs: Covers the cost of defending against a lawsuit alleging negligence or errors in services provided.

Settlements and Judgments: Pays for any settlements or judgments, up to the policy limits, if the family office is found liable.

Customizable Coverage: Policies can be tailored to cover specific risks associated with the services offered by the family office.

Directors and Officers (D&O) Insurance

Another crucial policy to have in place: Directors and Officers (D&O) Insurance, especially for those that operate as multi-family offices or have external board members. This insurance protects the personal assets of directors and officers in the event they are sued for alleged wrongful acts in managing the firm.

Key coverage elements of a D&O policy include:

Defense Costs: Covers legal fees associated with defending directors and officers against litigation.

Settlements and Judgments: Provides coverage for settlements or judgments arising from lawsuits against directors and officers.

Regulatory Actions: Offers protection in cases of lawsuits or investigations by regulatory bodies.

Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPLI) is also essential for family offices as employers. This insurance offers protection against claims made by employees alleging discrimination, wrongful termination, harassment, and other employment-related issues.

An EPLI policy will cover:

Legal Defense Costs: Includes the cost of defending against employment-related claims.

Settlements and Judgments: Pays for settlements or judgments against the family office in employment practice lawsuits.

Employee Claims Coverage: Includes claims made by current, former, and potential employees.

Fiduciary Liability Insurance

Fiduciary Liability Insurance is particularly relevant for family offices managing retirement plans or other employee benefit programs. This insurance provides protection against claims alleging mismanagement of these plans.

Beyond covering legal defense costs, a Fiduciary Liability policy will take care of:

Financial Losses: Including losses incurred due to alleged mismanagement of employee benefit plans.

Regulatory Compliance: Covering expenses related to compliance with regulations governing retirement and employee benefit plans.


In the complex world of wealth management and family offices, the right insurance is not just a safety net; it's a cornerstone of resilience and reliability.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.

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