Why family offices fall short in stress testing their risk management plans
Over 70% of family offices have not adequately "stress tested" their risk management plans through wargaming and tabletop exercises.
While family offices are aware of the numerous threats they face, many do not incorporate regular stress testing into their overall risk management strategy. This oversight could result in family offices overlooking a vital technique to assess the strength and resilience of their risk management practices.
The spectrum of stress testing methods is broad, extending from rigorous computer-simulated analysis to more straightforward, low-tech solutions.
A family office could, for instance, use a seasoned risk consultant to facilitate a formal "What If" discussion to discuss strategies and responses to various scenarios.
Regardless of the method chosen, the outcome is invariably beneficial: the family office emerges with updated contingency plans and identified opportunities to fortify against existing vulnerabilities. These assessments also provide a forum for family members to discuss their individual risk tolerances and uncover ways to better protect against potential reputational, regulatory, legal, and geopolitical pitfalls.
Over 70% of family offices have not adequately "stress tested" their risk management plans through wargaming and tabletop exercises.
Some firms cater specifically to family offices for these examinations today. Still, the FO industry could use more focused tech innovations in the area of stress testing.
What best practices have you seen for stress testing family offices? What hasn’t worked and why?