Custodians and broker-dealers place the onus of cyber theft on advisors and their clients .

HYSICIANS REFER TO SUDDEN CARDIAC ARREST AS THE

“ silent killer .” Someone ’ s life might be going along nicely , but then out of the blue they start feeling poorly , and within an hour or two they are dead . For the majority of the 350,000 people who die from it annually , their first noticeable warning is death .

Wealth managers don ’ t know it , but they also face a lurking potential silent killer , a hidden risk of harm they likely weren ’ t thinking about , and it involves cybersecurity and custodial and broker-dealer agreements .

A standard aspect of most of these agreements is that they shift the risk of cyber theft to clients , effectively leaving it to the custodian ’ s discretion to reimburse any losses if their accounts are breached or their money stolen . One such agreement shields the custodian from any liability unless the theft was specifically “ no fault ” of the client . Another makes the client “ solely responsible for safeguarding and keeping confidential [ their ] password and user IDs ” and the custodian is “ not liable for any loss or damage that occurs via the use ” of the password or ID .

There ’ s a similar bargain — albeit not widely known — with banks . Many people falsely assume that bank accounts are protected from cyber theft with deposit insurance . However , typical online banking agreements are also very one-sided and transfer the risk to account holders if they are at any fault themselves for what happened in a cybercrime .

To be fair , custodians and banks must insist on such terms . They would be insane to bear the risk of cybercrime when so many people are sloppy

Countless individuals use the same or similar passwords for their different online accounts . Few engage the available privacy and security settings on those accounts or on their devices .

and reckless online . Countless individuals use the same or similar passwords for their different online accounts . Few engage the available privacy and security settings on those accounts or on their devices . Many even regularly use public Wi-Fi without any protection . And nearly one million passwords per week are compromised , according to the cybersecurity website Secplicity .

Unfortunately , most wealth managers also are unaware of the bargain that their clients must agree to with custodians and banks , even though they often recommend which ones to use . Indeed , many advisors have never bothered to even read the agreements .

Against this backdrop , if you are an advisor , try and imagine a client ’ s reaction if an account is hacked and money is lost . How do you explain to clients that they assumed this risk when they signed up , especially if you never bothered to mention it to them ? Moreover , if you knew that this risk existed , why didn ’ t you at least try and help protect them ?

Our business is built on trust . Wealth management firms are some of the continued on page 55

60 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM