A Google scientist even recently found a way to hack iPhones by just sending them a text message and the recipient didn’t have to respond or click on anything for the sender to be able to access the phone’s information. The Israelis also found that there is a way to use a cell phone to copy another computer’s hard drive by just walking by it, even if that computer is not connected to the Web.
Consequently, at most secure military facilities one cannot bring their cell phones into the building. And wealth management firms are going to do the same. Employees will have company-issued cell phones, tablets and computers that will be tightly managed and controlled.
Also similar to the military, best practices in the industry will soon be that information will be segmented so that only those who actually need to access it can do so. Any information that is sent between devices will be encrypted at all times. And anything worth stealing that is not used on a day-to-day basis will be put on computers in separate rooms that are not connected to the Web and to which only a limited number of people will have access.
All of this is going to be both inconvenient and costly. But there really isn’t any alternative. As an (extraordinarily accomplished) retired general—who in his career effectively created the Army’s cyberwarfare capability—recently told me, “we now live in a world of ‘zero trust’ networks.”
But this all carries a potential silver lining for wealth managers. What at first looks like a costly operational burden could and should be turned into a core competence and a new service offering for customers.
Providing cybersecurity for client information and data fits the wealth management business model very well as an additional service offering. It is a high fixed cost, low marginal cost, knowledge-based, recurring, high value-added service. And if you think about it, it is also really a core part of any wealth manager’s job.
Why? Their core function is to help their clients manage and preserve their assets so that they can achieve their goals in life. Information is one of your clients’ most valuable assets. As a fiduciary, it is important to protect it. Moreover, all of the steps that firms are taking in their battle with cyber criminals are not going to be effective unless their clients likewise do what is necessary to protect their own information.
However, this opportunity is much bigger because information privacy is also rapidly becoming a very important issue to clients. People are waking to the fact that there are thousands of legitimate businesses (like Apple, Facebook, Google and Amazon) that regularly and legally track virtually everything people do on a day-to-day basis. Even George Orwell could not have imagined a world in which Jeff Bezos, Tim Cook and Mark Zuckerberg are tracking where all of us are at all times. And even worse, people’s health records are being shopped by data brokers, allowing outsiders to access one’s most critical and private information.
But few people understand what they should do about it. And this creates a big opportunity for wealth managers to add demonstratable value. Amongst other things, savvy firms are going to help clients understand their ongoing information risk and privacy. They are going to work with them on everything from adjusting the settings on their equipment and the apps that they use to helping them set up their own virtual private networks. They also are going to track what client information is for sale on the dark Web and alert them to change the necessary passwords, cancel credit cards, etc., as well as how to opt out of the information databases being shopped by data brokers.
The world is quickly shifting from the glorious and naïve early days of the Web where everything was open and shared to the sudden cold reality of capitalism and the darker side of human nature. Whether they like it or not, wealth managers and their clients are caught up in this conflict. For some firms, it will ultimately be overwhelming. But the smartest ones in our industry will see it for what it is—a great opportunity to further improve their clients’ lives.
Mark Hurley is the founder of Undiscovered Managers and co-founder of Fiduciary Network.