Increased cybersecurity threats tand to be the largest concern for RIAs in 2021 — whether they arefully aware of the threat or not — whileconsolidation and wider use of analytics,artificial intelligence, machine learningand other tech by advisors are among thetrends likely to continue into 2021 andbeyond, according to Joel Bruckenstein,head of Technology Tools for Today (T3).
“The industry is evolving, and it’sevolving at a rather rapid pace,” he toldInvestment Advisor in a phone interview. He pointed to the huge increasein advisors using video conferencing, aswell as new account openings and clientonboardings being done digitally sincethe start of the pandemic.
“These are major advances thatwould have happened anyway but mighthave taken three years,” he said. “That’ssignificant and there’s no putting thegenie back in the bottle … These arestructural changes in the industry thatare permanent. And that’s a big deal.”
THE CYBERSECURITY THREAT
Although the pandemic has ushered inmuch wider use of tech by RIAs as a resultof the shift to remote work, COVID- 19has also invited an influx of bad actorshacking into financial firms’ systems.
The U.S. government just got hackedby Russia. “If that was an advisory firm,[regulators] would be fining them millions of dollars,” Bruckenstein said.
The massive security breach “illustrates that the threats from bad actorsare not going away and, if anything, Ibelieve, they’re going to become evenmore prevalent,” he predicted.
Unfortunately, “most advisory firms
are just not as well prepared as they
should be to deal with some of these
threats,” he said. Larger firms typical-
ly have somebody on staff or full-time
consultants who are experts at dealing
with breaches. When it comes to smaller
firms, however, “I’m not sure [they] are
even fully aware of just how great the
SolarWinds software, which is at
the heart of the recent hacking opera-
tion, is used by financial services firms,
Bruckenstein points out.
“Many firms in the industry havesome sort of SolarWinds product thateither they are using directly, or that avendor is using as part of their ‘cyber’package. Every advisory firm should beasking their vendors about this, but fewif any are so far,” he stated.
Meanwhile, regulators are “cracking
down on” financial firms that aren’t
doing enough to protect their clients’
data, he noted, predicting this will “con-
tinue to be an area of concern and focus
for regulators over the coming year.”
The Office of the Comptroller of the
Currency recently levied a $60 million
civil money penalty against Morgan
Stanley Bank, N.A., and Morgan Stanley
Private Bank, N.A., for 2016 data breach-
es in two Wealth Management business
data centers in the U.S.
Breakaway RIAs may be especiallyvulnerable, Bruckenstein noted. “Whenyou break away,” the larger firm you leftis no longer around to be responsiblefor security, “so if you are not aware ofit and you don’t ask the right questionsand you don’t take the proper precautions, you’re at risk.”
CONSOLIDATION CONTINUESConsolidation, meanwhile, has continued through the pandemic. “You’ve seennumerous buyouts of smaller firms overthe course of” 2020 by larger financialfirms, according to Bruckenstein.
He pointed to Charles Schwab’srecently completed purchase of TDAmeritrade, as well as Goldman Sachsbuying Folio Financial/FolioFN asexamples. The list goes on and “I don’tthink we’ve seen the last of that,” he said.
That “raises some potential concernsfor RIAs,” he noted. Among them: “Istoo much power being concentrated inthe hands of too few firms right now? Idon’t think so. But if the trend continuesas it is, there’s certainly a possibilitythat that will happen and that it couldstifle innovation.”
THE VIRTUAL PARAPLANNER“You’ve already seen some major movement on the analytics side over the lastcouple of years, and that’s accelerating …to put meaningful data in front of advisors in a way that they can digest it andtake action on it,” Bruckenstein said,calling that a “very positive trend.”
Meanwhile, we are also “startingto see the emergence of a number ofproducts that really do leverage either
RIA LESSONS & LEADERS
By Jeff Berman
Top RIA Trends in 2021
Tech expert Joel Bruckenstein says advisors should ask their vendors
immediately if the hacked Solar Winds software is in their “cyber” package.