From the September 2007 issue of Investment Advisor • Subscribe!

Negotiating With Host

Choosing between an in-house or hosted e-mail solution

Although in the financial services sector most "official" communication still depends on the telephone authorization, the signed letter, the wire transfer, or the mailed prospectus, much information in the financial sector now is transferred by e-mail--including recommendations, marketing materials, and client-relations materials.

This transfer of information exists in a world of precise oversight including self-regulation, regulation by state and federal overseers, internal and external auditing, industry standards, and legal obligations. Along with this complex environment comes a high level of legal exposure extending not only to employees but also to managers and officers who sometimes face personal liability from matters contained in those electronic communications.

All this electronic communication requires the same level of compliance as more traditional communications with regard to privacy, security, records retention, ongoing compliance, and recovery and discovery of information.

This transfer of information must be completely secure; it must produce a recoverable audit trail; it must be protected from outside tampering and from the barrage of spam interfering with e-mail today; it must be disaster-proof, easily recoverable and secure from viruses, phishing, network attacks, and fraud.

Sometimes, brokerage offices and other financial services organizations believe the best way to secure their e-mail and e-messaging information is to purchase their own servers, put them in a secure place, buy the latest software, purchase safeguards in the areas of security, disaster recovery, and continuity, include anti-spam/virus/phishing/spyware features, build firewalls, institute an off-site backup system, make certain that the entire system is compliant as well as secure, and hire staff to manage the system.

Comparing the Options

Being in control of your own electronic communications system has its benefits, to be sure, but achieving this level of performance is becoming more complicated and more expensive, particularly when dealing with an increasing number of offices, or with remote or mobile employees. As a vendor of hosted e-mail services with whom our valued customers have entrusted this crucial aspect of their business, we can't pretend to be unbiased, of course, but our experience in serving those customers has given us a unique view of the e-mail issues faced by advisors and the brokerage and other firms with which they choose to partner.

Among those issues are these:

- There is more spam to deal with, billions of messages to block every day; if not blocked properly, spam can not only cut down on efficiency, but can distract from important messages to and from clients.

- Security is always a concern where personal financial information is involved; while it is possible for banks and brokerages headquartered in large buildings to designate physically secure areas for information technology, this is not always as easy for independent financial services offices or branches.

- End users are demanding more functionality from their e-mail system and require 24/7 availability.

As e-mail, e-messaging, and collaboration software becomes more sophisticated, it requires more expensive hardware and more fully trained--and higher salaried--people to keep it up and running; often, an e-mail administrator can be dealing with as many as 50 vendors at a time, including patches and upgrades.

- In the event of a natural disaster, facilities can be compromised; although off-site backup helps, re-establishing services and maintaining business continuity can be complex and expensive; any disruption in client services is always expensive.

- The expense of purchasing high-powered servers and the latest software, finding, hiring, and paying people qualified to administer it, and dealing with vendor and consultant tech support as needed, can be several times the expense of outsourcing the e-mail and e-messaging function. Initial cost differences are extremely high, as much as 85%.

- Increasingly mobile employees and those who work from home offices need access to the business's communications systems in order to provide increased responsiveness to customers and colleagues with "anywhere/anytime" access. When such access is not possible through company systems, employees often will send important information over public consumer e-mail networks in order to remain in touch while they are traveling or at remote locations; this can compromise reliability and security; also, e-mails coming from consumer services without proper branding erode credibility.

These are among the reasons that there is a large move to hosted e-mail and e-messaging services in many sectors, particularly financial services. The Radicati Group, a market research firm in the computer and telecommunications industry, expects that the installed base of the hosted business e-mail market will increase from 14 million in 2007 to 22 million in 2011, according to its second quarter 2007 report, Market Numbers Summary Update. This represents, notes Radicati, an average annual growth rate of 12% over the next four years.

Our own experience at USA.NET bears this out. One of the largest and most rapidly growing segments of our customer base is in the financial services industry. Most have chosen us based on our ability to provide security and retention solutions that include tools and assistance in meeting obligations under the Gramm-Leach-Bliley Act ("GLBA") requiring the protection of customer information.

And it goes without saying that a hosted solution must be robust and versatile enough to exactly meet an organization's business needs. Vendors should be able to specify and customize solutions that meet an organization's needs, rather than requiring an organization to choose between alternatives that may not fit.

In-House or Hosted?

As the move to hosted services becomes more commonplace, it is crucial for organizations to gain a greater understanding of the "hosted versus in-house" decision and, if the decision is made to go with hosted services, it is important to understand how to compare vendors.

In choosing between a hosted service versus an in-house operation or between hosting vendors, it is crucial to:

- determine your business needs and be certain the e-mail and e-messaging solution you are considering is a good fit.

- compare in-house operations and various hosting services in terms and numbers that are true comparisons.

- see all the vendors that are in the marketplace and talk to those that will provide guidance and support after the sale.

- be certain your solution supports all employees, including those who are mobile and working from remote locations.

- assure that the service and support going forward will also meet your needs in terms of guaranteed up time, remedies, continuity, disaster recovery, and security.

- know exactly how much you will be paying over time and for which services.

Ensure that the vendor you choose is fully qualified to provide reliable service going forward, by asking:

- What certifications has the provider achieved (for example, SAS 70)?

- What compliance, e-discovery, archiving, and related capabilities do they provide?

- What kind of support do they offer--24/7, technical account managers, phone, e-mail?

- What is the provider's roadmap in terms of long-term technology upgrades, migration plans, and other services?

In making such a choice, the most important factor is to compare "apples to apples" when choosing between vendors, since there is a difference between levels of service, security, and compliance tools provided. This is made even more complex because the terminology in the field is still in flux and can be ambiguous, requiring an even greater level of care when defining exactly what you are buying and how that service will perform (see sidebar).

Whether you are an RIA or a broker/dealer rep, make sure that your in-house or hosted e-mail solution not only meets the requirements of the regulator, but your business needs as well.


Victor Silva is VP of client services of USA.NET, a Denver-based provider of hosted electronic messaging services provided on a Software as a Service (SaaS) subscription model to businesses of all sizes. He can be contacted through www.usa.net.
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