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3 steps top advisors take to protect client secrets

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Consider, for a moment, the following common scenarios:

No. 1: A life insurance agent who writes the largest annuity of his career heads to the bar to tell his buddies about it, naming the client by name.

No. 2:  A financial planner learns that one of his best clients is getting a divorce. She then divulges this information to her sister over lunch.

No. 3: An investment advisor who works with an affluent entrepreneur gives in when another client demands to know the person’s investment mix.

No. 4:  A securities broker loads his client file onto his laptop, then leaves it on the subway on his way to work.

What do all four cases have in common? The advisors violated a core rule of customer service: safeguard client confidentiality at all times. This principle is enshrined in industry ethics codes and reinforced in countless training programs. Yet financial professionals blurt out client secrets every day, improperly store client documents, and fall prey to cyber-attacks.

What gives?

The problem is we live in a loose-lips society, where sharing secrets is somehow viewed as appropriate. Frankly, people today reveal too much about themselves when they’re with friends and colleagues. And on social media, their restraint dissolves furher in the hopes of gaining more “fans” and clicks. Sadly, this lack of discipline then infects the business environment, where advisors often treat their clients’ secrets with the same informality they handle their own.

Add to this the belief among unprincipled individuals that it’s OK to steal and leverage confidential information for personal gain.

All of this is bad news for advisors. Here’s why.

First, the financial services business is a business of trust. In order to work effectively with their advisors, clients must trust them enough to divulge sensitive financial and personal information. Without trust, financial teamwork — and progress — won’t happen. Second, financial advisors can destroy their businesses if they don’t protect customer information. Clients can sue if they’re financially harmed by an advisor’s sloppy privacy practices. And if there’s serious data breach in the office, an advisor can face years of E&O insurance litigation and potentially large financial losses.

A total commitment to client confidentially can be the bedrock of a profitable practice. (Photo: iStock)A total commitment to client confidentially can be the bedrock of a profitable practice. (Photo: iStock)

But let’s not dwell on the negative. The good news is that a total commitment to client confidentially can be the bedrock of a profitable practice. And the ROI for doing so is immense: greater client openness, more cross sales, more referrals to new clients, a sterling online and offline reputation, and a clean E&O insurance record, which will pay off in lower E&O premiums in the future.

So how to best lock down your firm? Experts suggest a three-tier approach involving compliance, ethics and technology.

First, learn and apply existing privacy regulations, especially Regulation S-P of the Gramm-Leach-Bliley Act, which mandates advisors develop comprehensive privacy policies and share them with clients. But don’t just publish a boilerplate disclosure on your web site. Integrate language about your commitment to privacy in your statement of vision and values and in your marketing materials — and then talk it up big time to both prospects and clients.

Second, go beyond mandated disclosures and apply ethical behavioral and procedural practices to assure full client privacy. These should consist of your rules for handling and securing client files and for restraining yourself when speaking to others about your clients.

Third, and perhaps the most difficult, is making sure your office networking, database and communications protocols are as secure as possible against marauding hackers.

I plan to expand on these three broad areas in upcoming columns. Until then, remember this: Advisors in business for the long haul treat their client’s secrets like precious gold. They place them in a vault. And there’s a golden reward for those who do this well.

Read more columns and articles by Steven McCarty:

Client service: Do you really deliver?

Serve yourself best by serving others first

Following the yin and yang of ethics and compliance

We’re on Facebook, are you?


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