Ethics Center: Sales & Marketing

Privacy Gold: 3 Steps Top Advisors Take to Protect Client Secrets

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 every day blurt out client secrets, 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 with friends and colleagues. And on social media, their restraint dissolves furher 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. Clients can sue if they’re financially harmed by an advisor’s sloppy privacy practices. And if there’s 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?  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 futur

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 just don’t 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, make sure your office networking, database, and communications protocols are as secure as possible against marauding hackers.

We’ll expand on these 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.

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.