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Integrated Wealth Management

What Your Investment Advisor Should Be Doing to Protect Your Confidentiality

Here are some things your investment advisor should be doing to protect your client confidentiality.

Here are some things your investment advisor should be doing to protect your client confidentiality.

Silence and privacy are the most undervalued assets in a client’s portfolio. We say this to acknowledge an often overlooked facet of investment management and financial planning: client confidentiality. This is something that many financial advisors and even their clients don’t pay enough attention to until it is too late. Is your advisor doing what your advisor should be doing to protect your confidentiality? Read on to figure it out.

The Affluent Person’s #1 Fear is Being Discovered

Anyone who has been taken advantage of financially knows too well that wealth can sometimes attract unsavory types and bring out the greed in people. Most affluent people live in fear (and in fact it is their #1 fear) of having others in their lives –including some of their friends and relatives – know how much money they have. They could end up being judged or criticized and the awkwardness it creates may be harmful to relationships.

Aside from the social fears, there are real risks to having the public know how much money you have. You face a higher risk of being kidnapped or robbed. And that leads to the affluent person’s second biggest fear – losing it all. 

The Advisor Should Care More Than The Client

It is the responsibility of the financial advisor to know more and care more about protecting the client’s confidentiality than the client his or herself does. While this may sound extreme it is the only way to make sure that safety is on the advisor’s mind at all times. 

Some advisors are prepared to do this, and some aren’t. For example, certain designations such as the CFA® designation have an ethics section in which exam takers are presented with scenarios and asked to choose which one is misappropriation of client information. 

Not all advisors take confidentiality that seriously. For example, we know of one advisor who routinely gave the key to his office to the 23 year old marketing associate so that she could lock up the office every night that he left early. This potentially could cause all sorts of issues. 

Clients, when evaluating an advisor, should ask themselves whose hands their private information will be in at any given time. The level of privacy is only as high as it is at its lowest point. In other words, the level of security is only as good as the weakest link in the chain. 

What Your Investment Advisor Should Be Doing to Protect Your Confidentiality

Here are a few examples of what your investment advisor should be doing to protect your confidentiality. This list is not exhaustive.

  • The advisor should take precautions to physically secure the premise. This means segregating employees so that only employees who are authorized to be privy to client data are permitted to enter the investment or trading sections of the office. In the age of “open floor plans” this can be difficult to do.

  • You should ask yourself who will have access to your data. Remember that your privacy is only as secure as the weakest link in the chain. Whose hands are your account statements going to be in? If you’re not pleased with the response then don’t ignore your instincts.

  • Don’t forget about the flow of your information in and out of the office. Does the advisor deposit outgoing mail in secure collection boxes or is it thrown into a communal open bin that everyone on the floor has access to?

  • There should also be virtual safeguards in place. Is access to the client part of the server restricted or does any employee have access?

  • Does the advisor conduct a background check on all employees? These technical security factors should be reviewed periodically.

  • The flow of data should be examined at the end of the lifecycle as well. Don’t forget that even if you erase the files, the data persists on your hard drive. Does your advisor turn in old computers to places like Target or Best Buy where they’ll just “wipe” the drive> Will they then refurbish the machine? A skilled hacker can crack into that. Or, do they employ a professional service whereby the drive is shredded to a fine powder that no thief can use to his or her advantage.

  • Does the office securely shred paper documents?

Situations When An Advisor Can Give Out Your Information

There are certain situations when an advisor just can not avoid having to release your information to a third party. Let’s say that they are executing a transaction on your behalf, or working with another financial institution on a matter related to your account. Obviously they may have to disclose some of your personal facts but even in that situation, the advisor should be careful and use judgement. Only “need to know” facts should be given out.

An advisor may be required to hand over your information to comply with law or regulations, or if there is a court order to do so. This is a rarity but it does happen.

Lastly, it would be appropriate for an advisor to give out your information to any person that you have authorized to receive it. The advisor should have asked you to furnish the names of these individuals in writing. Just saying the words can lead to confusion. The advisor should request this information in writing and also discuss it with you to ensure that no misunderstandings are happening.

Summary of Client Confidentiality

Confidentiality is binary; either the information is completely safe from harm, or it’s not safe at all. The tiniest crack can be pried open to spill the entire contents of the treasure chest, so to speak.

There is no “in between” or “sort of” when it comes to keeping your information secure.

It’s not glamorous but it’s one of the things that separate the elite advisors from the mediocre ones. If you have questions or doubts that your advisor is keeping your information safe, it’s not something to take lightly. Consider changing to someone who cares enough to take the time to make sure that he or she is doing what an advisor should be doing to protect your confidentiality.