Data Privacy Best Practices for Wealth Management Firms: A Comprehensive Guide

Data privacy is one of the most critical topics in the financial services industry. The fact that customer information and assets are at stake makes data privacy an extremely sensitive subject, and it's even more important than ever to ensure that you're following best practices.  

In this post, we'll walk through some of the steps you can take as a wealth management firm to protect your customers' data and ensure your business is taking all reasonable measures to mitigate threats against data privacy.  

We will also discuss how data privacy applies specifically within the wealth management industry and how you can take steps today to protect your customer information from harm or misuse. 

Why wealth management firms should take data privacy seriously 

Data privacy is an issue that is more important than ever for wealth management firms. 

Although these companies have a great deal of information about their clients, they must be cautious with that data. This is because clients are increasingly concerned about how their personal information is used. They may only trust their wealth management firm if it handles their information correctly. 

If you're operating a wealth management firm, here's why you need to take data privacy seriously: 

1) It helps you keep your clients happy. 

2) It protects you from lawsuits and fines. 

3) It builds trust with new clients. 

Understand what data you need to protect. 

You'll have to identify what data you need to protect and where it's stored. It is crucial that you know what information can be easily accessed by someone who isn't authorized, whether it be a hacker or an employee who wants access because they are curious. 

Here is some information that you will likely want to protect: 

• Customer and client names, addresses, and other personal details (e.g., date of birth). 
• Account numbers, credit card numbers, and further financial details (e.g., balances). 
• Email addresses. 

Understand the regulatory environment surrounding data privacy. 

It’s crucial to keep up with the regulatory environment surrounding data privacy. This is crucial because failing to comply with regulations can be financially devastating and damage your reputation. However, it’s an ever-evolving and complex environment leaving many wealth management firms lacking in compliance. 

In addition, many different types of regulations apply to wealth management firms and their clients—and they aren't all created equal. 

• Regulation: A rule or law enacted by an authority (such as a government) that binds members of a particular group or organization, such as regulators and regulated entities in the financial industry. 
• Law: A command issued by a competent official person or agency with the power to enforce it; used for rules issued by local governments and agencies (e.g., city zoning laws). 

Choose which data must be protected from internal threats. 

The first step in determining which data must be protected from internal threats is to identify what data is sensitive and needs to be protected from external threats.  

You can do so by answering the following questions: 

• How much does this information cost to create? For example, if you have an entire database of information created by manually entering cell phone numbers into Excel, it probably would be better to protect it from external threats. 

• Who has access to this information? If the answer is "everyone"—for example, because it's publicly available on your website—then there's no need for protection against outside attacks because no one would want your generic list of customers' names and email addresses anyway. 
• If someone wanted this data badly enough (like a competitor), could they get hold of it quickly? Do they know where it lives? Are there backdoors into your system/network through which this person could steal information without being detected? 

Work with experts to identify potential data vulnerabilities. 

Wealth management firms can also ensure that their data privacy policies are effective by working with a third party to identify potential vulnerabilities. These experts, like Surge Ventures, will help you develop a comprehensive plan for protecting sensitive information and responding to any incidents so that your firm doesn't become the victim of a hack or breach. 

Create security standards for the entire organization. 

One of the most important things you can do for your wealth management firm is to create security standards that everyone in the organization should follow. These standards will help ensure that your firm has a consistent, secure, and compliant data protection infrastructure. 

The first step in creating these standards is defining the problem before starting on a solution. By understanding where your most significant risks are, you can prioritize what areas need more attention from both technical and human resources perspectives.  

It's also crucial to set goals before starting any project; specific goals for what success looks like at each stage are necessary for things to go off track during implementation or maintenance later down the line (and then blame gets spread around). Don't worry about what other companies are doing now — focus on achieving tangible fitness goals within three or six months instead. 

Start with a mobile-first approach for all endpoints and devices. 

It would help if you started with a mobile-first approach to all endpoints and devices. While focusing on what's new within the industry is tempting, we must remember that mobile devices are often used for business transactions (like accessing a company email account).  

They're also the platform employees use most frequently to access sensitive information. Many people have multiple phones: one for work and one for personal use—and these phones are often used interchangeably between work and home. 

There are three primary reasons why you should adopt this approach: 

• Mobile devices can be sources of data breaches due to their portability, connectivity, and anonymity (e.g., users can sign into an app without providing any authentication). 
• Mobile devices are used for business transactions (e.g., accessing company emails). 

• Mobile devices access confidential documents or other sensitive information like financial records. 

Provide training for all employees, contractors, and vendors on the acceptable use of information technology (IT). 

Training is essential for individuals who handle client data to ensure that they understand how to use the information and how it must be protected. Employees often post the most significant risk due to lack of awareness and training. 

Also, your firm's size, risk tolerance, and regulatory requirements should determine the scope and frequency of training.  

Key topics to cover, include: 

• What constitutes personal information, and what's considered sensitive data? 
• What can you do with each type of data? For example, is it okay to share social security numbers with a third party? Are there exceptions to this rule (e.g., if you're required by law)? 
• How do you know whether an organization is authorized to receive client information (i.e., what makes them a "service provider")? 
• How do you verify that these service providers are trustworthy enough with your systems and those at other organizations that may be holding client information on behalf of your firm or even storing it indefinitely (as in case management software)? 

Learn how your business partners handle data privacy and security. 

You should also be aware of the security measures that your business partners have in place. This will be helpful if you have any concerns about the data privacy and security practices of other companies you work with.  

For instance, suppose you are a wealth management firm that uses an investment advisor to provide financial planning services for your customers. In that case, knowing how the advisor handles their customer information is critical.  

You may want a list of all the data they store on behalf of your firm's customers and what they do with this information (such as whether or not it is encrypted). If so, you can use this list as part of your audit process. 

Develop a plan for managing any incidents related to data privacy. 

As a wealth management firm, you must ensure that your organization has a plan for when things go wrong.  

It would help if you also had procedures for reporting and handling data privacy incidents. Having a plan will help ensure that your firm is prepared if an incident occurs and can react quickly after one happens. 

• Have procedures to address potential incidents related to confidential information. 

• Determine how employees will report suspected breaches of data privacy. 
• Plan for notifying clients about any breaches or unauthorized access to client information. 

Data privacy is essential in today's world, and businesses need to have a plan to protect their customers' information. 

Data privacy is a risk management, compliance, ethical, and legal issue that your firm needs to address with an appropriate strategy. Further, it’s vital to ensure that you have the right technology and that employees are trained on how it works. 

To summarize 

Data privacy is a complicated topic that can be difficult for many businesses to navigate. Data privacy best practices are constantly evolving, and your wealth management firm must stay up-to-date with the latest developments. The more you know about data privacy laws, the better prepared your business will be when dealing with potential incidents or breaches.