Modern technology has brought with it a whole new set of security risks of which financial advisors must be aware in order to protect their clients’ private information and financial data. Getting hacked is every firm’s worst nightmare, and the real damage does not always manifest itself right away. Of course, the potential liability from a breach also can be devastating to the advisor's reputation. (For more, see: Tips for Securing Financial Advisor Client Data.)

Reducing the Risks

Strong passwords: This is probably the most obvious measure that should be taken when financial planners set up their software. Coherent phrases and names should be avoided; rather, a random set of letters, numbers and special characters should be strung together in an incoherent fashion to minimize the chances of someone guessing it. Be sure and use passwords for all portable and mobile devices as well. And, of course, don’t share login information with anyone who is not explicitly authorized. (For more, see: Advisors: Avoid these Common Mistakes.)

Screen your email: Only open attachments from sources with whom you are intimately familiar, such as close friends and associates, family and clients. Even then, you should always screen the item for viruses and other malware before downloading it. And all outgoing emails — to anyone, anywhere, for any reason — should be thoroughly encrypted. You also should periodically purge deleted emails and other correspondence that is no longer needed, so hackers cannot use them to access data. (For related reading, see: 10 of the Most Costly Computer Viruses of All Time.)

Have a plan: Regardless of how well you think your data is protected, no firewall is invulnerable. You and/or your firm should have a strict set of security policies in place along with a step-by-step list of procedures that should be followed in the event of a breach. Everyone in the office should know exactly what to do, and in what order, to maximize damage control. Also be sure that your liability insurance will provide you with adequate coverage in this area if you need to file a claim. (For more, see: 3 Ways Cyber Crime Impacts Business.)

Back up your data: The only thing worse than having someone else hack your data is losing it yourself. A cloud-based data backup service can provide you with peace of mind in the event that cyber thieves make off with your client data. (For related reading, see: Cloud-Computing: An Industry in Exponential Growth.)

Keep devices updated and clean: Using the latest software programs will make it more difficult for hackers to break into your files. There are several free programs available that can quickly scan all of your computers and other devices for viruses, malware, trojans and other bugs that come from external sources. (For more, see: Tips for Keeping Your Financial Data Safe Online.)

Location, location, location: Never access client files or firm data from a public location. Anyone in the vicinity may be able to piggyback on your signal and get access to everything you are doing. It is much safer to access the internet using the mobile hotspot on your phone or other device instead. (For more, see: Top Digital-Age Tips for Financial Advisors.)

Teach your clients these tips: Keeping your data safe will be much easier if your clients also know the risks and take appropriate measures. While you don’t have much control over what they do, every one of your clients who follows your instructions regarding encryption, passwords and attachments reduces everyone’s risk. (For more, see: Are You a Target For Identity Thieves?)

The Bottom Line

The digital age has created a new breed of thief who can break into your client files at any time. Although it is impossible to completely guard yourself against any possible attack, there are several steps you can take to minimize your risk and potential liability. Common sense, reasonable precautions, proper planning and client education all can drastically reduce the chances of you or your firm becoming a victim of cyber crime. (For more, see: 10 Best Tools for Financial Advisors.)