Family offices continue to be prime targets for cybercriminals. A recent J.P. Morgan Private Bank study found that 24% of family offices, with an average net worth of $1.4 billion, reported experiencing a cyberattack. As Andrew Cohen highlights this week, experts are urging family offices to completely rethink their approach to cybersecurity. The current mindset focuses on technology, but the real vulnerabilities lie in processes and people.
Additionally, we provide a side-by-side comparison of how presidential candidates Kamala Harris and Donald Trump differ on key issues like taxes, capital gains and the economy. Read on to explore how their vastly contrasting views could shape the future, both this November and beyond.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Family offices must assess ‘weak links’ for cyber protection
By ANDREW COHEN
From Ohio school computers to nationwide hospital operations and Donald Trump’s presidential campaign, cyberattacks are compromising vast areas of society. Family offices are no exception, with ultra-high-net-worth individuals being a top target for criminal groups around the world.
“Even though family offices might be small employee-wise, they really need to think of themselves like medium-sized companies, because the assets they control be be significant,” said Michael Ehrlich, former chief of operations for a cyber defense group at the U.S. National Security Agency. “It's surprising the number of businesses and family offices that have in the past four or five years fallen victim to business email compromise attacks and wired money completely to the wrong account, with the best of intentions.”
Ehrlich is now a founding partner of Trifident, a cybersecurity consultancy that works with single and multi-family offices ranging from 30 to 250 employees. In a survey by J.P. Morgan Private Bank of 190 family offices, with an average net worth of $1.4 billion, 24% said they’ve been hit with a cyberattack, and 40% view cybersecurity as a top area of concern.
“We’re trying to help family offices rethink cybersecurity,” said Ileana van der Linde, head of cyber advisory at J.P. Morgan. “A lot of them believe this is a technology problem. But most cyberattacks don’t happen through technology; they happen because of people and process.”
Remote ‘weak links’
Before starting Annapurna Cybersecurity Advisors, cybersecurity expert Tony Gebely spent a decade as chief technology officer at the Family Office Exchange. Now when working with family office clients, Gebely conducts threat assessments that often identify work-from-home infrastructure as contributing to greater cyber risk than traditional office environments.
“We find a lot of weak links in individuals’ households — personal devices that aren’t being managed by anybody, personal emails that are receiving investment reports for the family office,” Gebely said.
“One of the first things we do when we start working with a new family is we look at if there’s any contracts with AV [audiovisual] companies for the different houses they own. Because a lot of times, you’ll have an AV company that installs not only AV equipment but networking equipment, and they are notoriously horrible at cybersecurity best practices.”
Firms like Annapurna and Trifident will help their family office clients select a managed service provider (MSP) to set up IT systems, as well as a managed security service provider (MSSP) to monitor networks for cyber threats.
This month, the cybersecurity services vendor BlackCloak raised $17 million to grow its platform for protecting family offices and corporate executives. Other potential cybersecurity vendors for family office and financial service providers include Thrive, Pro4ia and ECI, while Mastercard recently agreed to buy the cybersecurity firm Recorded Future for $2.65 billion.
“Over the past decade, nation-states and cybercriminals have shifted their attention from the well-defended walls of corporate environments and investment banks to softer targets that are easier to penetrate,” said Mark Donnelly, a partner at Baird Capital, which invested in BlackCloak. “This means that high-net-worth and high-profile individuals, family offices and corporate executives are increasingly falling prey to bad actors.
Family offices are encouraged to develop education programs to outline policies around wiring money and financial transactions, monitoring phishing attempts, using personal devices and adapting app-based, multifactor authentication. But they’ll want to extend these protocols to not only their family members and staff but also external partners.
“Third-party risk for family offices is significant since many rely on external counsel and outside tax or investment support, where the third-party provider holds private, personal, and proprietary data belonging to the family office,” said Ehrlich. “If those providers are breached the family office data is at risk. We’re increasingly seeing cyber breach notification clauses included in family office support contracts—things like a notification requirement within eight hours of a breach, description of affected data, things like that, to keep the family office in the know.”
Cybersecurity firms have to keep up with hackers leveraging artificial intelligence, such as the fraudsters who used deepfake imagery to persuade a Hong Kong finance worker to send $25 million after a videoconference call that impersonated the firm’s CFO. In July, automaker Ferrari narrowly avoided being duped in a similar deepfake scam.
Mitigating a personal digital footprint is another component of cybersecurity, with companies like Hush offering services. “We have a lot of clients who when the Middle East conflict started last fall were very concerned about having information about themselves online,” said J.P. Morgan’s van der Linde. “We’ll help clients with what kind of tools are there to help reduce your digital footprint, to reduce that public information.”
‘Suck it up and don’t pay’
Finance industry law firms such as Norton Rose Fulbright and CohnReznick have practices that specialize in cyber incident response. Companies such as Chubb, PURE Insurance and Risk Strategies offer insurance services for cyberattacks. But Adriana Zalucka of the family office networking group FOTechHub hears that cyber insurance routes are often futile and limited.
“Sometimes it might not be the best idea to call your insurance [company]; because if you haven’t done all the things you said you’d do in the application, then you’re not going to get a payout, and you’re not going to get insured again,” Zalucka said. “Speaking to a lawyer or a trusted specialist adviser first is a better idea, because there’s also all kinds of regulatory issues once you do pay a ransom to a criminal.”
Added Ehrlich: “A lot of the insurers have their own negotiators; most threat actors want to be paid in cryptocurrency. My view is never pay, unless people's lives are at risk. If you're a family office, they've already stolen your data — lock down your systems, suck it up and don't pay. Because [paying] just keeps them wanting more.”
In May, Wired reported that hackers behind the Change Healthcare cyberattack on U.S. pharmacies and hospitals received a $22 million ransom payment via bitcoin. Ehrlich, who spent 10 years at the National Security Agency, said cyber attackers are rarely held legally accountable.
"The FBI always wants you to report a breach so that they have better stats and can track who the threat actor is," Ehrlich said. "But unless it’s a really big breach, the FBI is not going to do much about it.
“We’ve had threat actors where we actually know their names, where their phone is calling from in India. But what are you going to do, call up the local Indian police and say, ‘Hey, I've got a name and a phone number, he just extorted $1,000 bucks from me?’ "
Harris vs. Trump: Taxes, capital gains and the economy
By BRIAN CROCE | PENSIONS & INVESTMENTS
Voters routinely tell pollsters that the economy is their most important issue in the 2024 election. And though many dividing lines exist between the two candidates vying for the presidency, they notably have vastly different economic visions.
Regardless of who wins the White House and which parties control the House and Senate, tax policy will be a major discussion point in Washington next year as many of the provisions in the Republican’s 2017 Tax Cut and Jobs Act expire in 2025.
Whether those provisions should be extended, amended or be allowed to lapse and how — if at all — a package should be paid for will be hotly debated.
On the campaign trail, both Vice President Kamala Harris and former President Donald Trump have outlined proposals for future tax policy with varying degrees of specificity. Here’s a look at where the candidates stand:
Tax extensions
Trump has called for extending the 2017 bill’s provisions that are set to expire. They mostly affect individuals, such as increases in both the standard deduction and the size of the child tax credit.
In May, the Congressional Budget Office estimated that it would cost $4.6 trillion over 10 years to extend the expiring 2017 tax cuts.
Harris, like President Joe Biden, has vowed not to raise taxes on Americans who make under $400,000 annually (about 98% of taxpayers, according to the nonpartisan Tax Foundation).
The Committee for a Responsible Federal Budget has estimated the cost of permanently extending the 2017 bill's tax breaks for people earning less than $400,000 could range from about $1.5 trillion to $2.5 trillion over 10 years.
Capital gains
Harris’ economic agenda calls for increasing the stock buyback tax to 4% from 1% and establishing a new billionaire minimum tax (no specifics from Harris are available, but President Joe Biden has proposed a 25% rate for households with more than $100 million of wealth, the Committee for a Responsible Federal Budget noted).
The Democratic nominee also pledges to increase the ordinary capital gains tax rate to 28% from 20% for households making over $1 million per year.
“Billionaires and big corporations must pay their fair share in taxes,” Harris said in a campaign speech this month. “And while we ensure that the wealthy and big corporations pay their fair share, we will tax capital gains at a rate that rewards investment in America’s innovators, founders and small businesses.”
Biden has proposed raising the top marginal tax rate on long-term capital gains to 44.6%, which includes a 5% net investment tax.
“I think Harris politically wanted to position herself more as a moderate, so she aimed lower,” said Steven Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute.
Trump has not called for raising taxes on capital gains.
“On taxing capital, Trump and Harris are going in opposite directions,” Rosenthal said.
And though neither candidate has mentioned carried interest on the campaign trail, private equity, hedge fund and venture capital trade groups are gearing up for a fight next year.
Corporate taxes
In the 2017 bill Trump signed into law, the corporate tax rate was cut to 21% from 35%. Trump, who touts lower corporate taxes as a boon for businesses and the economy writ large, has called for lowering the rate to 15%.
“To further support the revival of American manufacturing, my plan calls for expanded [research and development] tax credits, 100% bonus depreciation, expensing for new manufacturing investments and a reduction in the corporate tax rate from 21% to 15%, solely for companies that make their product in America,” Trump said Sept. 6 during a speech before the Economic Club of New York.
Benjamin R. Page, a senior fellow at the Urban-Brookings Tax Policy Center, doesn’t think a further reduction of the corporate tax rate is likely.
“I’m not sure there’s that much appetite for reducing taxes on corporations,” Page said. “If Trump was president and Republicans controlled both the House and Senate, it’s conceivable that that rate could be reduced further, but [Trump] might have trouble getting that through Congress.”
On the whole, sources said, Republicans in Congress are pleased with where the rate already is.
Harris, on the other hand, has called for raising the corporate tax rate to 28%.
Tariffs
The Republican candidate has called for imposing a universal baseline tariff on all U.S. imports of 10% to 20% and a 60% tariff on all U.S. imports from China, according to the nonprofit Tax Foundation.
The key to boost U.S. manufacturing “will be a pro-American trade policy that uses tariffs to encourage production here and bring trillions and trillions of dollars back home,” Trump said this month.
In the Sept. 10 presidential debate, Harris criticized the plan and referred to it as a tax on Americans.
Trump in the debate disagreed. Consumers are “not going to have higher prices,” he said. “Who’s going to have higher prices is China and all the countries that have been ripping us off for years.”
Economists are less bullish on Trump’s tariff proposal.
According to the Peterson Institute for International Economics, the Trump proposal “would reduce after-tax incomes by about 3.5% for those in the bottom half of the income distribution” and “would cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year.” Higher tariffs would pass higher costs onto U.S. consumers, economists say.
Trump has also called for establishing a tariff-backed federal sovereign wealth fund to pay for infrastructure projects and reduce the national debt.
The bottom line
Harris has said she’d like to expand the child tax credit, increase the deduction for startup business costs and provide down payment support for certain first-time homebuyers.
Trump — followed by Harris later — said he’d like to exempt tips from income taxes, cease taxes on overtime work and eliminate the green energy subsidies in the Inflation Reduction Act, which Democrats passed in 2022.
He has also said Social Security benefits should be exempt from taxes.
“People on Social Security have been wiped out by inflation, and now on top of it, we tax their benefits,” he said this month.
The Tax Foundation estimates that the major tax changes proposed by Trump would increase long-run gross domestic product by about 1.5% while decreasing federal tax revenue over the 10-year budget window by $6.1 trillion on a conventional basis.
For Harris, the Tax Foundation estimates that her policies would raise about $1.7 trillion over 10 years on a conventional basis and reduce long-run GDP by 2%.
“We find the tax policies would raise top tax rates on corporate and individual income to among the highest in the developed world, slowing economic growth and reducing competitiveness,” the Tax Foundation said of the vice president’s policies.
Kent Smetters, a business economics and public policy professor at the University of Pennsylvania’s Wharton School, said both candidates would increase the national debt — currently at $35 trillion — while reducing the size of the economy.
“The analogy I’ve been using is the house is burning down, and both the candidates are arguing over the furniture,” Smetters said. “We are on a path right where the economy is in a dangerous position of adding more and more debt.”
Smetters said lawmakers need to establish a plan to tackle the mounting debt crisis.
“Both candidates are working in the direction of more debt that would contract the economy and promising goodies for everybody but not really taking hard positions that are needed,” he said.
LOOSE CHANGE
Google, Citi, Pritzker family back estate planning software: Startup Wealth.com has raised a $30 million Series A funding round led by Google Ventures, with participation from Citi Ventures and 53 Stations, a venture capital fund started by the Pritzker family office.
BNY launches alternative-investments program: The Bank of New York Mellon has launched Alts Bridge, a new software to help wealthy clients and advisers access alternative investments from more than 20 hedge funds and asset managers.
Europe’s top getaways for fall: With fewer lines and milder weather, it’s easier to secure sought-after restaurant reservations and enjoy the sights. We've compiled a list of top locations and hotels.
Help us with a story: We’re working on a story about year-end philanthropic giving. If you have any comments on the topic, reach out to [email protected].