Cyber security is a “point of emphasis for both the SEC and FINRA,” said Joel Bruckenstein, publisher of Technology Tools for Today, adding advisors need policies and procedures in place to protect themselves.
Providing his outlook on the fintech industry at the Junxure Advisor Conference in Denver in late September, Bruckenstein said advisors need to educate their employees on the various ways they could be hacked. “Most of you are going a lousy job of educating your employees on cybersecurity,” he said.
Social engineering is the biggest cyber threat to advisory firms, according to Bruckensten, and guests to advisors’ offices are a risk, too. If guests have bad online habits, they’re putting your firm at risk when they use your network. He recommended setting up a separate Wi-Fi network for clients to use when they visit your office.
Passwords are another issue, he said. Two-factor authentication is one way providers have tried to protect users from themselves, but it’s been met with resistance. Bruckenstein said biometrics will alleviate some of that resistance.
Bruckenstein recommended advisors hire a third-party cybersecurity specialist to audit their firms rather than using their own IT specialist.
Robo-Advisor vs. E-Advisor
Robo technology is “good and getting better,” Bruckenstein said. Big players like Envestnet, Schwab and Fidelity are building or releasing a robo offering. Asset managers like BlackRock and Invesco are releasing their own robos as “a new distribution method.”
The good news for advisors, Bruckenstein said, is that the most successful model so far has been the hybrid robo-advisor model.
Vanguard is the best example of that model, he said, noting that although they’re cheaper than traditional advisors, they don’t offer the same level of service. “However, most people can’t differentiate.”
Unlike robo-advisors, which provide algorithm-based financial advice through a digital platform, e-advisors are advisory firms that offer a traditional financial planning services enhanced with technology offerings. For example, e-advisors offer interactive performance reporting for their clients, take advantage of automation for more efficient workflows and communication, and use data aggregation to give their clients a full picture of their financial health. Bruckenstein cited a survey by Fidelity last year that found only three out of 10 advisors are e-advisors.
That’s bad for firms because e-advisors manage greater median AUM, serve a greater percentage of millionaire clients and can serve 55% more clients without having to increase staff, he said.
A subsequent study by Pershing found that 90% of advisors spend more time on email marketing than social marketing—“probably not a good way to grow your business in the 21st century,” Bruckenstein said. Less than 55% of advisors use tablets in client meetings, “missing out on the on-the-spot opportunities to collaborate” with them.
The study also found the average advisory firm doesn’t integrate its web-based client portal with a mobile offering, Bruckenstein said. He noted clients, especially next-gen clients, “want to interact with you through an app. If you can’t do that, you have a problem.”