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Exclusive Interview: The Alliance's Tom Livergood On The New Risk Management

Harriet Davies, Editor - Family Wealth Report, 17 June 2011

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Cyber crime is reported to be the fastest growing type of criminal activity, with such firms as Citigroup, Sony and even a global organization like the International Monetary Fund coming under attack. Tom Livergood, chief executive of the Family Wealth Alliance, tells Family Wealth Report about the checks and balances wealthy families can implement to protect themselves.

Cyber crime is reported to be the fastest growing type of criminal activity, which is hardly surprising given its broad scope and the ubiquitous nature of the internet. And with such firms as Citigroup, Sony and even a global organization like the International Monetary Fund coming under attack, it is little wonder smaller companies and individuals may feel powerless to protect themselves.

However, according to Tom Livergood, chief executive of the Family Wealth Alliance, the fight to protect your family and possessions isn’t all about high-tech security systems. In fact, there are plenty of everyday processes that can be done to mitigate risks.

The Alliance recently founded the Alliance Security Council, which has been vocal on the threats pertaining specifically to wealthy families and family offices.

“I never thought we’d be in the business of looking at kidnapping and cybercrime, but these are very real problems now,” Livergood tells Family Wealth Report.

The Security Council recently released an advisory to its members, warning that while thieves and foreign organized crime organizations are targeting US family offices, most security breaches involving the ultra wealthy go unreported. It also commissioned a report on the issue by financial writer Mary Rowland. One firm featured in the report, Risk Control Strategies, reported a 41 per cent rise in service requests from family offices between 2009 and 2010. These related to identity and data theft, extortion, residential theft, embezzlement and fraud.

Identifying the threat

“We believe families are at risk, but we also believe families and advisors can defend themselves against these risks,” says Livergood.

He explains that it is often the things families do regularly, such as hiring staff, taking family holidays abroad, and using the internet, that can create risks.

“It’s a matter of auditing what’s going on and doing background checks, such as on staff, because in over 70 per cent of cases the victim knows the offender,” he says.

He gives other examples of threats, such as a teenage child updating his or her Facebook status with a message making it clear the whole family is away, or giving the family’s location abroad, or of a reputational crisis breaking over the internet.

“What if a certain message gets out? ‘No comment’ is not a plan,” he says.

Uncertainty

“And families don’t know who to go to. There are a lot of pretenders out there. Just because you’re ex-MI6 or Navy SEAL, with all credit to these people it doesn’t necessarily mean you’re a personal security expert,” says Livergood.

The Alliance Security Council vets these firms, and provides threat assessments to families, analyzing their behavior as a family and determining which threats are therefore the greatest to them. It also provides guidance on preventative measures to its member families.

When asked about the difficulty of finding the right talent and skill set to deal with this relatively new field, Livergood says that to an extent this is a challenge, but the Alliance is leveraging its 8+ years’ experience in vetting companies so it can capitalize on its networks and experience in the vetting process and apply this to the personal security industry.

“We’re talking to people in the field constantly, and we also go and interview these firms,” he explains.

Raising the issue

On the issue of whether wealthy individuals initiate conversations with their advisors on security, Livergood says unfortunately there is some inertia in dealing with new threats, and this is likely to be an “event-driven” service. “Clients say ‘yes, I know what I need to do,’ but they might not do it until an event hits and then they go into crisis mode.”

“Disaster preparedness is suddenly very topical, but that may subside,” he adds, depending on the frequency of natural disasters going forwards.

On whether advisors can or should be raising the issue to clients, Livergood admits a certain degree of bias, but says he genuinely believes this can be a competitive advantage for wealth management firms, citing GenSpring Family Offices as one of the leaders in this area.

“It’s in its early stages, but everything has to start somewhere and people are keen to get this going,” he says.

He thinks the industry is very much behind the movement to tackle this problem head on, but there are only a minority of firms actually doing so as yet. Of course, all large banks have teams working non-stop on dealing with financial fraud and the like, but a full risk-management service for UHNW clients is a different type of offering, encompassing such diverse problems as medical, personal security and reputation management.

“We’ve been following this for several years, the Security Council has actually been over three years in the making,” explains Livergood.

“We get no fees from the expert firm when we place a family. We only make money from subscriptions and doing threat assessments and that follows the values we’ve always had. We don’t share fees,” he says. “The other core value we have is not to be a fear monger; we are saying ‘there is something you can do’ and being constructive.”

 

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