Cybersecurity is a top concern among high net worth individuals. According to Morgan Stanley, more high net worth individuals listed data security as their number one concern over terrorism or contracting a major illness. More than 80% of these individuals said it was “difficult knowing how to protect [themselves] from identify theft with technology changing so quickly,” while nearly 60% feared they would become a victim “without even realizing it.”
Let's take a closer look at why cyber crime matters to your business and how advisors can reduce risk to keep clients and regulators happy. (For more, see: Cybersecurity: What You Need to Know to Stay Safe.)
Why Cyber Crime Matters
There are many different types of cyber crimes that impact people from all walks of life, but high net worth individuals tend to be lucrative targets. Cyber criminals often go to great lengths to spoof official e-mail or assume the identity of trusted vendors to convince victims to transfer funds to a foreign bank account. The FBI has received reports from some 17,642 victims of these scams between Oct. 2013 and Feb. 2016, who have lost more than $2.3 billion.
Financial advisors play an intimate role in the finances of high net worth individuals, which puts them in a position to ensure that solid cybersecurity measures are in place to help clients reduce their risks. A significant loss could reduce the client’s investable assets; but more importantly, a cybercrime could result in the client losing trust in his or her financial partners. In the case of a well-connected client, this could have big negative consequences for an advisor.
Regulators have taken an interest in ensuring financial advisors’ own systems are properly secured. In December 2016, FINRA slapped 12 companies with $14.4 million in fines for cybersecurity-related issues, including Wells Fargo, LPL Financial, SunTrust Robinson Humphrey, RBC Capital networks, and PNC Capital, among others. Advisors who don’t have the proper safeguards in place risk being fined by these agencies as they continue to crack down. (For related reading, see: Advisors Are Feeling Cyber-Insecure.)
Tips for Protection
There are several ways to help protect high net worth individuals from cyber crimes. Some tips that advisors relay to customers include:
- Confirm e-mail requests. Clients should confirm wire transfer requests they receive via e-mail with a phone call or in-person meeting as it's easy for criminals to spoof e-mails to make them appear legitimate.
- Use multifactor authentication. Multifactor authentication helps eliminate the possibility of an account being compromised by confirming any unrecognized logins with a confirmation code sent to a mobile phone.
- Consider buying insurance. Clients should review their insurance policies and consider adding cyber or fraud coverage when it makes sense to do so. This can help reduce the financial impact of fraud if and when it does occur.
- Review policies. Clients should review the policies of their financial institutions to see which third-party providers may have access to data and consider the risk of loss provisions in those agreements, including liability in the event of a data breach.
For financial advisors, it can also help to showcase your firm's cybersecurity efforts to help reassure clients that their data and capital is safe.
The Bottom Line
Cybersecurity has become a paramount concern for high net worth individuals, which means that financial advisors should take note. In addition to providing advice, advisors should be sure that their own cyber infrastructure is secured against attack to prevent any issues down the road, including avoiding potential fines from regulators like FINRA. Taking these steps before an incident can help ensure that clients feel comfortable and safe. (For related reading, see: What You Don't Know About Cybersecurity Can Hurt You.)