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Financial Tips

Security, Identity Theft and Your Finances: Key Questions to Ask Your Financial Advisor

Young couple listening to their banker.

Over the past couple of years, there has been an explosion of identity theft, with individual hackers, organized gangs of criminals and other computer-savvy ne’er do wells joining in the fun. The victims of these cyber crimes have run the gamut, from employees working remotely to small business owners to key decision makers at Fortune 500 companies.

No one, it seems, is immune to the dangers of identity theft and cybercrime, but some intrusions are more worrying than others. If you work with a financial advisor or rely on third parties to manage your finances, you could be at extra risk, and the potential loss could be enormous.

If a hacker gains access to your bank account, you could, at least temporarily, lose a few thousand dollars, but what if your six (or seven) digit brokerage account is targeted? With so much money on the line, you might want to ask your broker or financial advisor some questions, including the following.

Do You Carry Additional SPIC Insurance Coverage?

If you have a bank account, you are probably aware of the FDIC insurance coverage that protects your funds. Even if your bank collapsed tomorrow, the FDIC would step in and reimburse you. This FDIC coverage will protect accounts up to $250,000, more than enough for the vast majority of depositors.

Brokerage accounts enjoy a similar type of protection, this one provided by the SPIC. The limits of SPIC coverage are even higher than those provided by the FDIC, protecting accounts up to $500,000 in size. This coverage protects the holders of brokerage accounts in the event the brokerage firm goes out of business or becomes insolvent. It does not, of course, protect you from financial losses, but this type of coverage is still incredibly valuable.

Whether you are concerned about identity theft or not, it is important to ask your financial advisor or brokerage firm about how much SPIC coverage they currently have. Many brokerage firms purchase additional coverage from the SPIC, often far in excess of the $500,000 minimum.

Knowing that this additional coverage is in place can help you rest a little easier, but you will still need to find out what specific steps your favorite financial advisor is taking to protect their firms and their clients from identity theft, and that means asking some additional questions. Here are some other factors to think about.

What Proactive Measures is Your Firm Taking to Keep Accountholders Safe?

Identify theft and cybercrime protection require more than reactionary measures. By the time a given brokerage firm or financial advisor finds out their have been victimized, it may already be too late, and their clients cash and securities could already be at risk.

Protection from cybercrime and identity theft requires a proactive approach, with real-time monitoring, managed IT services and other measures designed to protect financial advisors, brokerage firms and the clients that rely on them for their investments. If you are a client of such a firm, you have the right to find out exactly which measures they are taking to keep themselves and their clients safe.

Does Your Firm Have Separate Cybersecurity Insurance?

The current rash of cybercrime, ransomware attacks and hacking attempts has created a new kind of insurance, one that many brokerage firms and financial advisory companies have adopted. That insurance protects against these modern threats, including ransomware attacks that can encrypt and lock up client files, hacking attempts that can steal that personal data and other risks that are only now emerging.

If you work with a brokerage firm or financial advisor, it is important to ask about their cybersecurity insurance coverage. If your brokerage firm has not purchased this vital type of coverage, you may want to take your money elsewhere.

Do Your Brokers Work from Home? If So What Additional Security Measures Are in Place?

A growing number of brokerage firms and financial advisory firms have allowed their employees to work from home, partly out of health and safety concerns and party as a money-saving measure. Working from home can actually have a positive impact on things like productivity and customer service, but this type of remote work can also have some safety risks.

Home Wi-Fi routers are often inherently insecure, with weak or default passwords and other security deficiencies. When properly addressed, all of those security issues can be overcome, but some brokerage firms and financial advisors may not understand the dangers.

If you are working with a financial advisor or trying to secure your brokerage account, start by asking whether or not their employees are working from home. If the answer is yes, follow up with further questions about the security protocols the firm has put in place to secure their files and prevent the inadvertent loss or deliberate theft of client data.

Whether your brokerage account is four figures, five figures, six figures or even seven figures, you have a great deal to protect and a lot at stake. As the risk of cybercrime continues to increase, it has never been more important to protect what you own, and that means taking proactive steps to safeguard your savings. The questions posed above can help you do just that, so you can rest easier and worry less about the safety of your savings and investments.