Despite the reputational damage it causes, cybercrime is not a major concern among wealth managers. This needs to change.
One in five investors globally has been a victim of financial fraud over the past three years, according to our 2020 Banking and Payments Survey. By contrast, the fraud rate is notably lower among non-investors at just over one in 10 (11%). At least to some extent, this can be attributed to lower financial product holdings and engagement and, as such, lower exposure to risk. At any rate, this suggests that wealth managers have to up their game.
GlobalData’s Wealth Management Scorecard, a ranking of wealth managers against key themes and issues shaping the future of wealth management, assigns an average cybersecurity rating of 2.9 (out of five) to the world’s top 60 wealth managers, leaving significant room for improvement. However, financial services providers’ level of concern remains low. Only 55% of wealth managers are concerned about the effects of data breaches on their company’s brand, according to our 2020 Global Wealth Managers Survey.
Not counting the reputational damage providers suffer as a result, this is costing the industry billions every year. Of those investors who were subject to fraud, 25% terminated the relationship with the provider. Given the costs involved in acquiring and retaining customers, this is a significant proportion.
Clearly, more needs to be done. While there are significant differences between wealth managers, only one provider scored a five-star cybersecurity rating. Serving as a best-practice example in this context, Charles Schwab’s Security Guarantee provides assurance to customers through its 100%-money-back promise in case of any losses due to unauthorised activity. Strong investments in cybersecurity, on the other hand, minimise the risk of fraud in the first place. The provider uses advanced encryption technology to secure communications as well as pattern analysis and other advanced analytical systems to detect suspicious account activity and prevent unauthorised access.
With online activity on the rise as a result of COVID-19, fraud rates are likely to rise further; indeed, some fraudsters are specifically targeting the investment and pension sector. Implementing additional measures to ensure extra protection will be paramount to protect against monetary and reputational damage.