A weekly update on cybersecurity trends in the wealth management space. We explore the client-adviser relationship over a cybersecurity breach.
Peace of mind.
If wealth managers sold it as a physical product, it could trade at a premium right now.
In the wake of COVID-19, client expectations have shifted. Anxieties remain high. Expectations have shifted. Risk tolerance and personal financial goals have evolved.
I would largely dub the pandemic a “Grey Swan” event. Rand Institute warned about the impact of an outbreak in 2012. But the U.S. government spends nearly 100 times more money on anti-terrorism efforts than its does on pandemic efforts.
That said. Here we are. So, we will carry on and adapt to the major shift brought on by COVID-19.
However, there’s another seismic trend happening that advisors must control before it becomes a severe problem for their clients.
That is a cybersecurity breach – either at the wealth management firm or for the individual. But keep something in mind – this warning isn’t seeped in fear. It’s one wrapped in the inevitable about the future of the Digital economy and human health.
As we head into the fall, a hard reality faces us.
At some point, all of us – be it two weeks or two years – are likely to get sick. Whether we catch COVID, the flu, or some other ailment, the question isn’t if, but when. Treating that foreknowledge with the gravity it deserves requires an individual to focus on preparation. There is only one logical thing to do when you know you’ll become sick. You need to boost your immune system to fight off germs and illness.
Well, the same goes for cybersecurity. In the wake of the COVID-19 shift, our economy has transitioned from a “Physical First” to a “Digital First” environment. While advisors shift their business from physical meetings and seminars to a future of Zoom calls and enhanced data management tools, cybersecurity must become the backbone of their organization.
Advisors and their clients must move now to improve their “Digital Immune System.”
How to mitigate a cybersecurity breach
The better-prepared one is for an inevitable attack on their information and accounts, the less damage that wealth managers and their clients will endure.
And think about it: Advisors control a treasure trove of personal and business data. According to Digital Shadows Photon Research, hackers and other nefarious actors would be happy to take this information. They could add it to the more than 15 billion consumer credentials already circulating on the Dark Web.
As fiduciaries, wealth advisors must allocate time to educate clients on the potential impact of a cyber breach. These breaches fuel identity theft, loss of personal assets, or demands for Bitcoin ransoms.
Meanwhile, the wealth advisor must ALSO ensure they employ the most advanced cybersecurity protections. Their businesses must protect client data, avoid phishing scams and malware, and mitigate the risks associated with third-party vendors who are commonly overlooked in the risk assessment process. Cybersecurity must be front of mind for all advisors now and in the future.
Unfortunately, the challenge for wealth advisors is that consumers are highly concerned about engaging in business with companies that have faced a cyberattack. According to a new report from KPMG, roughly 90% of Canadians are “leery” of sharing personal information with anyone who has suffered a cybersecurity breach.
And 84% of these consumers would consider taking their business elsewhere due to that breach. We can debate the behavioral differences between U.S. and Canadian consumers, but the truth is that the attitudes around cyber are typically universal across North America. It’s one key observation that drove Wealth Professional to declare that “one data breach may be all it takes to lose a client forever.”
The future and how to mitigate risk
I argue that the Post-COVID world will not punish wealth advisors and other businesses in the new digital economy. It won’t be the fact that the breach happened that will drive away customers.
It will be how the advisor planned ahead of time and what tools they embrace to reduce clients’ fallout and exposure. Advisors must shift their focus from avoiding a breach at all costs to mitigating the risks and limiting the damage from what will likely be an inevitable event.
Finally, this weekly column will examine the new technologies that can mitigate those risks. It will further explore best practices that wealth advisors can employ to protect clients and boost that digital immune system critical to their relationship. Finally, I will conclude with a quick reading list that will offer insights and resources for Digital Wealth Readers.
Enjoy the week,