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When Advisors Break Away, Cybersecurity Also Gets Broken

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While many larger firms and wirehouses are tied to legacy technology infrastructure, advisors who break away from these firms and go independent have the freedom to embrace new technologies.

However, that newfound freedom also raises questions of cybersecurity, and many advisors may not have experience dealing with this issue.

“I’d say if there’s one area of expertise that breakaways are the thinnest on it’s got to be cybersecurity,” said Tom Harms, chief operating officer at Summit Trail Advisors, during an External IT conference Monday in New York. “If you picture the cushy world of the wirehouse, what’s going on in data security and information security? You’ll get the memos and the flyers, but actually the technical work that’s going on and how many times is a particular wirehouse attacked during a day—which is thousands—it’s just not something that [advisors] factor in.”

Harms speaks from experience. He worked at Fidelity and Morgan Stanley before joining the independent advisory firm Summit Trail. Summit Trail, which was founded just over a year ago, explicitly aims to “embrace the evolution in technology that has transpired outside the traditional banks over the past decade.”

“I can’t think of an area where it’s probably most important to make sure that you’re partnering than data security,” Harms said. “Unless you’ve actually hired on a military data security expert…you’re not going to get that kind of expertise and you can’t really be expected to do it just from the Internet notices being sent around.”

Paul Metzger, chief technology officer at Dynasty Financial Partners, has more than 20 years of experience with buy-side financial services technology. He agreed with Harms on how difficult data security can be for breakaway advisors.

“There’s a lot of technologies out there, which again are arcane and obscure and buried way back in an IT or security organization in a big bank, that an advisor doesn’t even know these things are going on,” Metzger said. “Obtrusion and protection, data loss prevention, technologies and all of this kind of stuff is critical to have and you just can’t do it yourself.”

For independent advisors, who typically have relationships with several vendors or other firms, managing data can be difficult.

“Vendor management becomes very important, and taking that seriously…you gotta know who has your data and where your data is,” said Metzger.

A study on advisor movement by Fidelity asked breakaway advisors, “What do you wish you’d known before switching firms?” The study found that 20% of breakaways said issues related to technology.

As Metzger pointed out, it is much easier to become an independent advisor today than 10 years ago largely in part due to cloud technology.

“The whole cloud movement has been a complete revolution and enables the delivery of technology in a way that is pretty profound and different and pretty powerful,” Metzger said, adding, “That’s the great thing about the breakaway movement now. It really is easy. You basically can have an iPad and cellphone and you can be an advisor, right? Which was unthinkable 10 years ago.”

However, he noted, this also raises security challenges, and Harms said some of these challenges arise partly because advisors don’t “by nature” have a technology mindset.

“Advisors, by nature, are not supposed to be spending their time helping architect and integrate technology,” Harms said. “Especially during that tenuous period of transition, when client relationships are most important and need to be serviced.”

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