Cyber Security Tips for Financial Advisors

Cyber security isn’t just something tech firms need to pay attention to; it’s important for financial advisors and the financial services industry, as well. Clients’ sensitive data is a tempting target for hackers seeking financial gain, making constant vigilance a must. Here are some cyber security tips that can help you build a solid line of defense.

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Understanding the Importance of Cyber Security for Advisors

Protecting your clients and their financial data is one of your most important responsibilities as an advisor. When clients share their sensitive information with you, they expect you to take the necessary precautions to keep it safe. Without safeguards in place, a security breach can leave them vulnerable to financial losses and identity theft.

Resolving these types of issues can be time-consuming and costly, which can cause your clients to lose trust in you. If clients are affected by a security breach, they may choose to move their assets to another firm. Your brand reputation may suffer, making it more difficult to acquire new clients.

And if you’ve partnered with any businesses or individuals in the past, they may decline to maintain those relationships. And if it’s determined that a security breach is the result of negligence on your part, you could also be subject to fines or penalties. For all of these reasons, it’s important to take cyber security seriously.

Cyber Security Tips for Financial Advisors

Even if you consider your cyber security plan to be watertight already, there may still be room for improvement. Review your plan with the following cyber security tips in mind, to see if you can spot any potential weak spots or gaps:

• Identify potential threats. Ransomware, malware and phishing are some of the cyber security threats advisors may face. You should evaluate which types of attacks may target your firm. You should also be aware of what data or assets cyber attackers might target.
• Stay on top of reporting. The SEC requires advisors to file an annual cyber security report. This report should detail potential threats and vulnerabilities, as well as the processes and procedures you’re using to mitigate any risks. While annual reporting is mandatory, you could run reports on a more frequent basis to better assess your risk.
• Internal controls. When dealing with sensitive client data, it’s important to know who has access. To help prevent unauthorized persons from seeing sensitive information, you can limit controls, as well as monitor files access.
• Emphasize employee training. While cyber security software programs help defend against attacks, it’s just as important to make sure your employees recognize potential attacks or suspicious activity. Employees should be aware of best practices concerning password management, device usage, information accessibility and identifying potential attacks.
• Schedule test runs. Consider simulating a cyber security incident. This can help test your response plan, and look for any areas where you might improve. This is also a good way to gauge how well your employee training plan is working.
• Secure a cyber security insurance policy. While the SEC doesn’t require that advisors have cyber security insurance, it’s highly recommended. A cyber security insurance policy can protect your firm against financial losses or liabilities related to a security breach or cyber attack. It’s helpful to compare policies from multiple providers to understand your coverage options and the cost you might pay.

Don’t forget to consider what cyber security measures any third-party vendors you work with are using. For example, if you’re using an advisor marketing platform to connect with leads, it’s helpful to understand what security measures the provider implements and how it handles compliance requirements.

Frequently Asked Questions (FAQs)

Who Regulates Cyber Security for Financial Advisors?

The Securities and Exchange Commission (SEC) regulates cyber security rules for registered investment advisors and broker-dealers. In 2023, the SEC adopted and implemented new rules that require advisors to disclose cyber security incidents promptly and make an annual report outlining their cyber security policies.

What Is Financial Cyber Security Compliance?

Financial cyber security compliance refers to practices and procedures that are designed to ensure adherence to applicable laws and regulations. Advisors who fail to comply with cyber security regulations may risk fines or other penalties, including the potential loss of their SEC registration status.

What Must Advisors Do When a Cyber Attack Occurs?

The SEC’s cyber security rule requires advisors to report material cyber security incidents on Form 8-K within four business days of determining that it was a material incident. Failing to properly report cybersecurity incidents within the required period could result in stiff penalties.

Bottom Line

Cyber security is a serious matter for financial advisors, as the financial services industry is a frequent target for attacks. These cyber security tips offer a starting point for creating a comprehensive plan to protect your clients and your firm from security breaches.

Tips for Growing Your Advisory Business

• Gaining new clients is a top priority, but it’s often challenging when you don’t have as much time to dedicate to marketing as you’d like. Partnering with a marketing platform can save time while helping you gain access to leads. SmartAsset AMP helps you connect with leads and gives you the tools you need to follow up. Schedule a demo to learn how you can use it to grow your book of business.
• Compliance extends beyond cyber security to every aspect of your business. The SEC is constantly refining rules and regulations to ensure that consumers are protected, and firms are compliant. Monitoring the latest compliance trends can help you get ahead of any new regulations or rules that may be on the horizon.

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