Steven R. McCarty
BEST PRACTICE LifeHealthPro.com/author/steven-mccarty
LifeHealthPro.com | January 2017 | Retirement Advisor 13
A life insurance agent who writes the largest annuity of his career heads to the bar to tell his buddies about it,
naming the client by name.
A financial planner learns that one of his
best clients is getting a divorce. She then divulges this information to her sister over lunch.
An investment advisor who works with an
affluent entrepreneur gives in when another
client demands to know the person’s investment mix.
A securities broker loads his client file onto
his laptop, then leaves it on the subway on his
way to work.
What do all four cases have in common?
The advisors violated a core rule of customer
service — safeguard client confidentiality
at all times. Yet even though this principle
is enshrined in industry ethics codes and
reinforced in countless training programs,
financial professionals blurt out client secrets
every day, improperly store client documents,
and fall prey to cyber attacks. What gives?
The problem is we live in a loose-lips society,
where sharing secrets is somehow viewed as appropriate. Frankly, people today reveal too much
about themselves when they’re with friends and
colleagues. And on social media, their restraint
dissolves further in the hopes of gaining more
“fans” and clicks. Sadly, this lack of discipline
then infects the business environment, where
advisors often treat their clients’ secrets with
the same informality they handle their own.
Add to this the belief among unprincipled
individuals that it’s oK to steal and leverage
confidential information for personal gain.
All of this is bad news for advisors. Here’s why.
First, the financial services business is a business of trust. In order to work effectively with
their advisors, clients must trust them enough
to divulge sensitive financial and personal information. Without trust, financial teamwork
— and progress — won’t happen. Second,
financial advisors can destroy their businesses
if they don’t protect customer information. Cli-
ents can sue if they’re financially harmed by an
advisor’s sloppy privacy practices. And if there’s
a serious data breach in the office, an advisor
can face years of e&o insurance litigation and
potentially large financial losses.
But let’s not dwell on the negative. The
good news is that a total commitment to
client confidentially can be the bedrock of a
profitable practice. And the RoI for doing so is
immense: greater client openness, more cross
sales, more referrals to new clients, a sterling
online and offline reputation, and a clean
e&o insurance record, which will pay off in
lower e&o premiums in the future.
So how to best lock down your firm? experts suggest a three-tier approach involving
compliance, ethics and technology.
• First, learn and apply existing privacy
regulations, especially Regulation S-P of the
Gramm-Leach-Bliley Act, which mandates advisors develop comprehensive privacy policies
and share them with clients. But don’t just publish a boilerplate disclosure on your web site.
Integrate language about your commitment to
privacy in your statement of vision and values
and in your marketing materials — and then
talk it up big time to both prospects and clients.
• Second, go beyond mandated disclosures
and apply ethical behavioral and procedural
practices to assure full client privacy. These
should consist of your rules for handling and
securing client files and for restraining yourself
when speaking to others about your clients.
• Third, and perhaps the most difficult, is
making sure your office networking, database
and communications protocols are as secure
as possible against marauding hackers.
We’ll expand on these three broad areas over
our next three columns. Until then, remember
this: Advisors in business for the long haul
treat their client’s secrets like precious gold —
they place them in a vault. And there’s a
golden reward for those who do this well.
Privacy gold: 3 steps top advisors
take to protect client secrets
Frankly, people today
reveal too much about
they’re with friends