Essential Cybersecurity Tips for Financial Advisors

It’s no surprise the financial industry and its sensitive data are a prime target for cybercriminals. Personal information, financial details, and investment strategies make it highly valuable to cybercriminals seeking to exploit it for financial gain or malicious purposes. As a result, financial advisors and institutions face a heightened risk of cyberattacks, making it necessary for them to prioritize cybersecurity measures to safeguard their clients' data and maintain their reputation and clients’ trust.

“At LPL Financial, we know that cyber threats have become increasingly sophisticated, and we must stay ahead of the curve,” said Greg Gates, managing director and Chief Technology & Information Officer. “Our Advisor Information Security team is dedicated to tracking trends and implementing proactive measures to protect our advisors and institutions.”

In a 2024 study, IBM and Ponemon Institute found that the average global cost of a data breach is $4.88 million, which is the highest total ever. But companies save an average of $2.2 million when using security AI and automation extensively in data loss prevention.^*

By following these best practices to mitigate cyber threats, you can significantly reduce your vulnerability to cyberattacks and maintain your clients' confidence.

Strong Passwords and Multifactor Authentication

As cyber threats continue to evolve, adopting a proactive and comprehensive approach is a necessity.

One of the most important ways to protect your accounts, apps, and devices, as an advisor, is by using strong passwords and enabling multi-factor authentication (MFA). Here are a few tips for creating and protecting passwords and using MFA to mitigate risk:

• It's crucial to avoid reusing passwords across different accounts or using similar passwords with slight variations
• Use upper and lowercase letters, numbers, and special characters
• Passwords should be at least 12 characters and not words from the dictionary
• Never share passwords or write them down; use a digital password manager to manage complex passwords over multiple platforms
• Add a layer of security to your accounts and make it more difficult for bad actors to access them by using MFA; examples include biometric data or a code sent to your phone

If you discover a password is compromised, change it (and others similar to it) immediately, monitor your accounts for fraudulent activity, and use anti-virus or anti-malware software to scan your device.

Mobile Device Security for On-the-Go Advisors

Financial advisors often use mobile devices to access client data, communicate with clients, and manage investment portfolios. While these devices offer flexibility and convenience, they also introduce unique cybersecurity risks and need to be protected.

Implementing encryption and remote wipe capabilities is crucial for safeguarding data in case of device loss or theft. Encryption ensures that data remains unreadable to unauthorized individuals, while remote wipe allows advisors to erase sensitive information remotely if necessary. Biometric authentication, such as fingerprint or facial recognition, adds another layer of security to your device.

Avoid connecting to public Wi-Fi networks, as these can make your device vulnerable. Instead, use a virtual private network (VPN), which provides a secure and encrypted connection that protects internet traffic from unauthorized access. Ensuring your software is updated to the latest version is also essential for protecting your device from known vulnerabilities.

Protect Data in the Cloud

Employing strong encryption methods is crucial for both data at rest and in transit. This ensures that even if unauthorized individuals gain access to the cloud storage or intercept data during transmission, they will be unable to decipher it. Implementing access controls is essential to restrict who can access client data within the cloud environment. This includes defining user permissions and implementing authentication mechanisms such as multifactor authentication or biometric identification.

Regularly monitor and audit cloud activity by using a reputable cloud service provider. Through continuous tracking of user access, data modifications, and system events, you can promptly detect and respond to any suspicious behavior. Carefully assess your provider's security measures, compliance certifications, and capabilities before entrusting them with sensitive client data.

AI and Machine Learning: Cybersecurity's New Frontline

Artificial Intelligence (AI)-driven algorithms can monitor network traffic and user behavior patterns in real-time, enabling quick detection and response to potential threats. It can also automate routine security tasks and adapt security measures, providing up-to-date protection against emerging cyber threats.

Generative AI tools like ChatGPT can add efficiencies to processes. However, it’s important to understand how these tools work and to never enter sensitive information into them.

Machine Learning algorithms can analyze large volumes of security data to identify suspicious patterns and trends, helping uncover hidden threats that traditional measures might overlook, such as an unknown security flaw in software or hardware and advanced persistent threats. Anti-virus software is an example of Machine Learning.

Cyber Insurance Adds a Protective Layer

Cyber insurance provides coverage for a wide range of expenses that can arise from cybersecurity incidents and data breaches. Discuss your needs with knowledgeable insurance brokers who specialize in cybersecurity, and whether first-party coverage, third-party coverage, or both are best for your business.

These policies typically cover expenses such as legal fees, forensic investigation costs, and data recovery. Beyond direct financial coverage, cyber insurance policies often extend their protection to include business interruption and lost revenue resulting from a cyberattack. Carefully review the terms and conditions of these policies before committing to coverage. Regularly review your cyber insurance policy to ensure coverage remains adequate as the cybersecurity threat landscape evolves.

Stay Ahead of Emerging Cyber Threats

Cybersecurity is not just about protecting systems and data; it's about protecting the trust and confidence of your clients. With the ever-changing landscape, you need to remain informed of new threats, review and update cybersecurity practices, and embrace proactive measures as part of an ongoing journey.

By staying informed and prioritizing cybersecurity, you’ll not only safeguard your clients and firms but also contribute to the overall security of the financial industry. Equip staff with the knowledge and skills to identify and respond effectively to cyber threats. Training sessions should emphasize employees' roles and responsibilities in maintaining cybersecurity, recognizing common threats, and adopting secure practices in their daily routines.

Regular security audits and risk assessments, performed by qualified cybersecurity professionals, are essential. By identifying and addressing vulnerabilities, you can significantly reduce the risk of successful cyberattacks.

Committed to Cybersecurity

Mitigating risk while prioritizing disruption for our clients is a top priority. To protect our advisors and institutions, in 2024 LPL has a $500M budgeted spend on technology infrastructure and cybersecurity, which is a 66% increase from 2023.

“We work together to stay informed, minimize risks, and ensure the security of our financial ecosystem,” said Gates. “Cybercrime is a reality, but so is our commitment to combating it.”