Coming soon to your practice: Data, data, everywhere
Big data, it turns out, is just the beginning.
As data sharing between devices accelerates, advisers can expect even more client information coming into their systems at faster speeds, requiring quicker responses, better data safeguards and more compliance standards to enact.
Indeed, how the Internet of Things — the network of physical objects embedded with software and sensors that are connected to collect and exchange data — will impact family offices and the wealth management industry will be a lead topic at the Financial Office Exchange's Financial Executives Forum conference in Chicago in July.
"The Internet of Things is becoming a top of mind issue for our members and we're going to discuss how it will change the family office industry and how we serve our clients," says Alexandre Monnier, president of Family Office Exchange.
Advisers working with wealthy clients can expect data from sensors that may be attached to physical assets including properties or agriculture, says Family Office Exchange senior technology consultant Steve Draper, as well as from other accounts owned by the clients and stock exchanges.
"Trading settlements and how advisers know their customer are two areas likely to be impacted most quickly by the internet of things," Draper says. "The biggest challenge facing financial advisers will be dealing with the amount of data coming their way and the speed at which it will arrive."
More data and constant connectivity also means more pressure to beef up data security and guard against privacy leaks.
"More areas will be vulnerable and there will be more ways to get hacked," Draper says. "Advisers are going to have to start thinking how they can future-proof themselves in some way."
Due diligence will be critical for advisers, according to Kenneth Rashbaum, a New York-based attorney specializing in cybersecurity law.
"Inquiries should include questions designed to assess whether the application or device was designed with cybersecurity and privacy enabled by security in mind, or was bolted on later as an afterthought," says Rashbaum, a partner who heads the privacy and cybersecurity practice group at Barton law firm.
The reputation of advisory firms will be increasingly at risk as more data comes in from mobile devices which are often not well protected and vulnerable to data breaches, Rashbaum points out.
"Family offices and advisory firms should be proactive, conducting periodic vulnerability assessments and having legal and technical consultants prepare policies and procedures for mobile device use and information security," Rashbaum says.
"Breaches are very expensive in a number of ways, from fines to departures of clients and subscribers. The offices and firms can pay less now to protect their greatest asset, subscriber and client information, or they can pay a lot later when a breach occurs."
The back office of advisory firms will bear the initial brunt of the data deluge, Draper says.
Blockchain technology is already impacting data distribution, he points out, and as more systems talk to each other, clearing and settlements will increasingly be done in real time, requiring advisers to react more quickly adjust their risk profiles.
Advisers who want to peer into the future should look to Australia, Draper says, where the stock exchange is now all electronic and using blockchain.
The Internet of Things will also allow advisers to provide clients with real-time feedback and potentially be a driver for growth by providing firms with new business insights gleaned from the increased data.
"Every aspect of people's lives is going to be affected [by this technology]," says Draper, "and advisers will need to upgrade their best practices."