Technology is the answer to many problems that have plagued the wealth management field for years. Today fintech allows advisors to access client information on multiple platforms as well as enter data in one pass. No one seems to disagree that technology has helped grow the business.
However, according to GlobalData’s 2019: Trends to Watch in Global Wealth Management report, cybersecurity is more critical as the use of technology grows in the field. But there’s a problem, the firm notes: “Our data suggests that despite acknowledging clients’ rising level of concern with regards to cybersecurity, so far the industry has underestimated — if not dismissed — these risks.”
GlobalData says this “attitude will change” due to the rise in attacks directed at high-net-worth clients, as well as the toll breaches could take on firm reputations.
The report sees the use of technology in the field increasing, a trend that is illustrated dramatically with the growth of robo-advice platforms. In fact, the study states that today 43% of wealth managers use robo platforms on some level, up from 26% in 2016. This promises to grow in all regions, it states.
Further, the move to digitize records has upped the importance of cybersecurity. And it goes beyond that. “With client communications shifting to digital channels, having a confidential meeting is not just a matter of securing a private room or location, but also about making sure the remote channel is secure,” the report states.
The study notes that more than a third of the HNW population is over 60 years old, which means baby boomers are more often the target of cyber fraud. In fact, a 2017 Norton Cyber Security Insights Report found that boomer losses from cybercrime were the highest of all age groups and 15% above the global average. Therefore, education of both clients and staff is key to curbing some of these issues, according to GlobalData.
Further, the financial services industry, according to the Ponemon Institute, has the highest frequency of data breaches, and the second highest when it comes to data breach costs, the report states. The fines can hurt the bottom line, but as important is a data breach’s effects on the company’s brand. In fact, the study found that “lack of trust in advisors remains one of the factors deterring investors from seeking professional advice, regardless of client segment.”
But the effect that breaches had on brand was found to be important to only 43% of global wealth managers, according to the study, although 60% of those stated that their clients were increasingly worried about data breaches and cybercrime.
That said, the study also found that there is little evidence that consumers change financial service providers due to data breaches, stating that only 9% of those who had been a victim of cyber fraud switched their provider as a result.
In fact, the study states that the wealth management industry has “a history of data breaches and leaks that had a limited impact on business.” It cites the infamous Panama Papers and Paradise Papers leaks that “did not drastically change how wealthy individuals approach offshoring of wealth,” as this group seems to be “used to data leaks.”
However, as regulation on data protection grows, so too will the need for financial services firms to have contingency plans as well as be prepared for if and when a breach happens, states the report. Further, “notifications about data breaches can be automated, but advisors need to be kept in the loop with regard to what is being communicated to their clients,” GlobalData states.
“While the growing reliance on technology arguably contributes to growing cybercrime, it can also be the means to counter it,” the report states. “Blockchain, for instance, can be used to ensure data integrity and security.”
However, the survey found that many wealth management firms weren’t investing in advanced technologies — some concerned about the security of blockchain. “This suggests the industry has no choice but to start catching up,” the report concluded.
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