Best Cybersecurity Practices for Financial Advisors
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Sensitive client information is a prime target for hackers looking to make money; therefore, ongoing caution is essential. Current cyber security threats alert all institutions to invest in creating a strong defense. Cybersecurity is not only mandatory for computer companies, but financial advisors and the financial services sector should focus on it as well.
The Importance of Cybersecurity for Financial Advisors
One of your most significant duties as a financial advisor is to safeguard your clients' financial information. Clients expect you to take the appropriate security measures when they give you sensitive information. Without protection, they may be exposed to identity theft and monetary damages in the event of a security breach.
These kinds of problems can be expensive and time-consuming to resolve, which might make your clients stop trusting you. Clients may decide to transfer their assets to another company if they are impacted by a security breach. Gaining new customers may become more challenging if your brand's reputation declines.
Additionally, companies or people you have previously collaborated with can decide not to continue those partnerships. Additionally, you can face fines or penalties if it is found that your negligence caused a security breach. Cybersecurity should be taken seriously for all of these reasons.
The fact that defending a system is significantly more expensive than hacking is a straightforward explanation for why phishing and ransomware tactics are still effective. You can see why it's more important than ever for businesses to have a strong cyber resilience plan when you include ransomware versions that use artificial intelligence.
According to the experts, effective cyber resilience needs to be a risk-based, enterprise-wide strategy involving cooperation from the company and its partners, suppliers, and clients. This could entail actively managing risks, threats, and vulnerabilities in the context of a financial advising profession by including clients, staff, licensees, and regulators.
Financial advising businesses may retain great relationships with their clients and inspire confidence in potential clients by implementing solid cybersecurity policies that safeguard their clients' data and uphold trust.
Cybersecurity Threats for Financial Advisors
Since financial advisors usually lack advanced cybersecurity infrastructure, they are easy targets. Below is a list of some of the most prevalent risks and how they could impact the financial planner's operations:
Inadequate IT Infrastructure
Many small firms are susceptible to cyberattacks because of their outdated or insufficient IT infrastructure. Because cybersecurity is underfunded, there may be vulnerabilities that hackers may exploit right away.
Data Breaches
Data Breaches occur when confidential client information is obtained by unauthorized parties. Hacking, gadget theft, or insider threats could be the cause of this. Among the consequences are potential fines, a drop in client confidence, and legal repercussions.
Phishing Attacks
Cybercriminals commonly use phishing emails to trick employees into divulging personal information or downloading destructive software. This could lead to unauthorized access to client data or system credentials.
Ransomware
A malicious program that encrypts business data and blocks access until a ransom is paid. These attacks might substantially disrupt business and result in significant financial and reputational losses.
Third-Party Risks
Financial advisors typically rely on independent contractors for cloud storage, billing services, etc. These vendors could act as an entry point for attackers if they don't have adequate IT security.
How can a Breach Harm a Financial Advisor?
A cyberattack can cause both financial and reputational damage to the financial advisor:
Financial Damage – Case Study
According to the complaint, Massachusetts-based Fidelity is "one of the largest asset managers in the world" with more than $5.4 trillion in assets under management as of June 2024.
Compliant informed that between August 17 and 19, 2024, cybercriminals gained access to the asset manager's computer network, obtaining information about financial accounts, driver's licenses, Social Security numbers, and identities.
According to a proposed class action, Fidelity Investments' inadequate computer system security caused a data breach in August that exposed private financial and personal information. The theft impacted about 77,000 customers, according to a data breach report sent to the Maine attorney general on October 9.
A complaint filed in the US District Court for the District of Massachusetts claims that the corporation, also known as Fidelity Management & Research, failed to implement acceptable cybersecurity procedures, including encrypting customer information and giving enough employee training.
Reputational Damage
Cybersecurity attacks can also be a serious risk to a financial advisor’s reputation. Clients expect planners to protect their sensitive data from fraudsters in the current digital era. A cyberattack has the potential to seriously harm a financial planner's reputation, leading to a decline in client confidence, bad publicity, and long-term harm to the planner’s office.
This loss of trust can result in clients switching to the competition who demonstrate better security practices. That’s why many financial advisors end up protecting their assets after a breach.
Best Practices on How to Protect Yourself
Here we expose the best cybersecurity practices that financial planners should undertake:
Identify Possible Threats
Advisors may be exposed to ransomware, malware, and phishing, among other cybersecurity risks. You should assess the type of attacks that could be directed at your company. Additionally, you should know what assets or data cybercriminals might target.
Access Limitation
It's critical to understand who has access to sensitive client data. You may monitor file access and limit controls to help keep unauthorized people from seeing important information.
Employee Training
Even though cyber security software helps protect against attacks, it's equally critical to ensure that your staff members are aware of any unusual activity or possible attacks. Best practices for password management, device use, information accessibility, and spotting possible threats should be known to staff members.
Ongoing Monitoring
Ongoing monitoring is essential to head off threats before they become larger problems that can cause a lot of hardship for a business. Sentinex can help advisors monitor things like their domain, passwords, financial information, FEIN or D&B numbers (if applicable), emails, passwords, and other information that may appear on the dark web. We help alert the businesses so they can mitigate and act quickly.
Encrypted Instead of Traditional Email
One of the least secure ways for financial advisors to communicate while managing sensitive client data is via email. By offering encrypted built-in messaging, you will lower the dangers involved with unprotected email exchanges and enable a private, secure channel for client-advisor discussions.
Securing Digital Signatures and Documents
Digital document handling requires trustworthy signatures and safe preservation. You should guarantee that papers are safely signed and kept in the client vault by integrating with DocuSign and providing built-in e-signature options. This keeps a compliant, well-documented audit record for each contact and improves security.
Identity Verification Procedures
Identity verification is essential for protecting customer information, particularly when communicating remotely. Secure solutions enable safe document uploads and links with cutting-edge identity verification systems like Singpass, guaranteeing that your clients' identities are swiftly and safely validated within the platform.
2FA-Enabled Cybersecurity Policies
The effectiveness of cybersecurity rules depends on how well they are implemented. All user accounts should have two-factor authentication (2FA) enabled to provide an extra degree of protection against unwanted access. When used in conjunction with robust password policies, 2FA contributes to the protection of critical information on your client portal.
Implement a Secure Server / Cloud Solution
Reliable cloud-based platforms with robust encryption and data protection are essential for financial advisers. To protect sensitive client data, you must secure file systems and communications, whether your system is built on-premises or in the cloud. Strong cybersecurity for any wealth management or financial planning company starts with a secure server (cloud platform).
Run Tests
Think about testing a cyber security scenario. This might assist in testing your response strategy and identifying any potential improvement areas. This is also an excellent method to assess the effectiveness of your employee training program.
Conclusion
Financial planners need to have a robust cybersecurity plan in place to protect their data and prevent cyber-attacks. Your clients have trusted you with their highly sensitive information.
To implement proper cyber security - it is crucial to undertake multiple security measures listed above. By affiliating an expert consultant to your security plan, you will significantly reduce IT assets’ vulnerability to multiple types of cyber threats, protecting your organization’s data and reputation.