Get Your Hands Off My Data! Investors May Want More Data Privacy, Study Shows
Investor expectations and regulatory action may change data privacy policies across all industries, a Cornerstone Capital Group study shows. And the move may retroactively effect advice firms’ client recruitment abilities.
The study, ‘The Data Privacy Puzzle,’ shows companies across all industries may see increased investor demand for data privacy or enter a sterner data regulatory environment manifesting in one of four ways:
- Low demand for data privacy and low regulation
- Low demand for data privacy and high regulation
- High demand for data privacy and low regulation
- High demand for data privacy and high regulation.
High privacy demand situations could particularly challenge advice firms. For instance, with high privacy demand and low regulation, regulators will fail to respond to customer concerns and while technological innovations will increase, so will the risk of unintended consequences, the study suggests. The risks associated with unintended consequences could be significant for financial advisors, Michael Silver of $550 million RIA Baron Silver Stevens Financial Advisors, says.
“Risks surrounding data security keep me up at night, and vulnerability to hacking is a part of it,” Silver says.
Valuable client data being compromised by hackers is one of the greatest concerns for FAs going forward and falling victim to cybersecurity breaches has become increasingly common, Silver says. This is a particular issue because many advice firms are not adequately guarding data privacy and security, Chad Cassaday, director of IT for $2.8 billion AUM RIA Cassaday & Company, claims. The more firms Cassaday speaks with, the more apparent the industry’s lack of cybersecurity knowledge becomes, he says. But for firms with strong cybersecurity procedures, client demand for security coupled with an industrywide lack of security could present opportunity for winning over security-conscious investors.
Advice clients have become more cognizant about data security in the financial realm, so firms with data security procedures and personnel gain an additional client recruitment tool, Cassaday says. Cassaday & Co. has apparently benefited from its tougher-than-most security practices, and its in-house IT team has become a selling point for prospective investors.
Another likely scenario for wealth managers, the study claims, is high demand for data privacy and increased regulation. Such a situation could cause technological progress to slow and client data gathering to be restricted by regulators, the study claims. Less client data could particularly hurt advisories that use advanced analytics on firm data to push firm growth, including finding new clients.
For instance, Baron Silver uses advanced analytics to pinpoint client demographics that will “fit well,” Silver says. The big data analysis lets them use gathered data to obtain the exact profile of the perfect client, he adds. Increased regulation around data privacy might make such data probes more difficult.
But Silver is optimistic about potential future regulation around gathering client data. Instead of access to information decreasing, firms will simply have to be more upfront about where they got their information, Silver predicts. And this prospect might not be all bad.
“Right now, it’s the Wild West out there,” in terms of gathering data for marketing and outreach purposes. In the future there will be more disclosure and mass regulation at a federal level around data privacy, he says.