Cloud computing still wrestling with cybersecurity fears
Cloud computing has become a central component in wealth managers’ future development and success. Indeed, many of the innovations wealth managers are pursuing are only possible thanks to the low-cost data storage and high processing power the cloud affords.
No wonder then that three-quarters of respondents to the latest WealthBriefing/SS&C Advent Technology & Operations Trends survey say they plan to increase their use of cloud technology over the next three years.
Yet despite the evident benefits, concerns remain—particularly when it comes to firms’ most sensitive data.
So what’s holding wealth managers back from taking up cloud-based solutions and hosted technologies?
The main issue: security worries.
Almost two-thirds of the survey’s respondents said security was a barrier—a small increase on last year’s figure, and way ahead of regulatory issues (the second most important obstacle), which saw a sharp rise.
As the report observes: “It would seem that understanding of cloud technology and its cost-reduction potential is rising simultaneous to fears over loss of client privacy and cyber-attacks ratcheting up—along with fears over regulatory censure.”
The security paradox
Given clients’ wealth (and potentially their personal and public profile), they are a natural target for cybercrime. So cybersecurity is bound to be a prime focus.
But too many wealth managers’ efforts currently fall short.
The Scandinavian markets, for example, have made good progress with two-factor authentication via personal tokens and SMS. Institutions elsewhere though, including in the UK, still often trust to username and password combinations alone, notes the report.
“It might be assumed that criminals would regard one-factor authentication when clients hold millions, or possibly even billions, with a wealth manager as a fairly laughable level of security,” it adds.
And with the sophistication and scale of cyberattacks multiplying all the time, this is an “arms race” wealth managers will be hard pushed to match. That bastions like NASA and the FBI have suffered breaches underscores the commitment, knowledge and investment wealth managers will need to stay ahead. Indeed, Coutts, the UK private bank, estimates security could end up representing as much as 30% of private banks’ technology budgets.
So despite the security concerns about cloud and hosted technologies, security fears are in fact a powerful reason why wealth managers should adopt them.
Trust the professionals
Third-party providers build up considerable technological and security expertise through their focus on the field, and by working with diverse and multiple institutions in different jurisdictions. Outsourcing and hosting, points out the report, allows wealth managers to share in this expertise, as well as benefitting from compelling economies of scale.
As the report concludes, “it is arguable that using these technologies—and so bringing to bear the resources and expertise of technology giants—is in fact a powerful means of mitigating these security risks and reinforcing firms’ defences cost-effectively.”
Technology & Operations Trends in the Wealth Management Industry 2017, by WealthBriefing and SS&C Advent
To get a full copy of the report, visit “Technology & Operations Trends in the Wealth Management Industry 2017”.