Advisers Are Apparently Ignoring Cybersecurity Threats

TD Ameritrade this week provided a fresh cut of data from its 2018 RIA Sentiment Survey, in which independent registered investment advisers (RIAs) look ahead to 2018.

Likely surprising to few, the GOP tax cut plan is the top item expected to impact client sentiments and portfolios in the next year, say independent registered investment advisers (RIAs) polled by TD Ameritrade. Survey results suggest advisers are also “closely watching earnings and interest rates.”

The strong majority (70%) of RIAs expect to see economic growth in the U.S. and abroad this year, while roughly half are bullish on equities. According to the survey data, RIAs expect “financials, materials and industrials” to perform better in 2018, which is somewhat at odds with what various asset managers have projected.

“Their own optimism aside, RIAs say that money in retirement, taxes and estate planning also top clients’ biggest concerns,” TD Ameritrade reports. “To keep up 2017’s momentum, RIAs will look to marketing, not merger and acquisition activity.”

More than three-quarters of RIAs say firm assets will rise in 2018; nearly half expect assets to grow faster than 2017. That will be a pretty impressive feat, as RIAs ended 2017 with revenue growth averaging 15%, TD Ameritrade finds, and with full-service brokerage firms supplying a third of their new clients.

“Though M&A is not in the cards for most, RIAs who are considering it want to acquire or add to their firms, versus merge or sell. … RIAs say they will spend more on marketing in 2018, as they consider it the most important way to drive growth,” the research shows.

Turning to client satisfaction, RIAs say tech investments in 2018 will focus on improving client experience, a top strategic priority for many RIAs. “Regulations and lack of client awareness” are seen as the biggest threats to RIA growth, and only 1% are “extremely concerned” about the threat of robo-advisers.

Lack of concern on cybersecurity

One finding that could be of note for PLANADVISER readers shows only 27% of RIAs surveyed by TD Ameritrade suggest that “cybersecurity issues,” even when very broadly defined, are likely to impact client portfolios during 2018. This lack of concern and action on cybersecurity challenges probably represents wishful thinking and potentially dangerous complacency on the part of RIAs, attorneys and other experts have warned.  

Indeed, on September 25, 2017, the Division of Enforcement at the Securities and Exchange Commission (SEC) announced the creation of a new cybersecurity unit. As pointed out by David Kaleda, principal in the fiduciary responsibility practice group at Groom Law Group, in Washington, D.C., the cyber unit is explicitly tasked with addressing concerns raised by the increasing use of technology by investors and advisers, as well as the growing risk of general market manipulation and other investor harm.

“The cyber unit will comprise SEC staff with expertise and experience in cyber issues,” he confirms. “Clearly, the creation of the dedicated unit signals that the SEC has a growing appreciation of the potential risks associated with cyber issues. Its concerns rightly include the use of technology to gain an unlawful market advantage, e.g., hacking to access material, nonpublic information, hacking of accounts in order to conduct manipulative trading, and disseminating false information through electronic publication; the failure by registrants to adequately secure customer data and ensure system integrity; and the failure by a public company to disclose, or adequately disclose, cybersecurity incidents that occur at the company.”

Advisers may just be surprised by how much they find themselves talking about and responding to cybersecurity issues during 2018, given the low concern measured on this point by TD Ameritrade.  

Full survey results can be downloaded here.