The Importance of Regularly Reviewing Vendors and Third-Party Service Providers
As a financial advisor, the security and integrity of your clients’ data should be a top priority. With the increasing reliance on third-party service providers and vendors in today’s digital age, it’s crucial to regularly review and assess the risks associated with these relationships.
According to a recent survey conducted by FINRA, the majority of attendees reported performing vendor due diligence on their most critical vendors annually. While this is a good starting point, it’s important to consider whether an annual review is sufficient given the rapidly evolving landscape of technology and cybersecurity threats.
Regulators like FINRA and the SEC are placing more responsibility on financial firms to ensure the protection of client data and notify investors in the event of a data breach. This includes assessing the criticality of software services, conducting thorough reviews of potential vendors, and continuously monitoring the security measures in place.
Brian Carter, vice president of technology at Sigma Financial, emphasized the importance of a multi-tiered review process when onboarding new vendors. This includes assessing the potential for cyberattacks, reviewing cybersecurity documentation, and ensuring data storage and usage compliance.
Even technology platforms like Flourish, which work with RIAs, understand the importance of staying in constant communication with their client advisors and third-party providers. CEO Max Lane stressed the need to thoroughly understand how data flows externally and to take responsibility for every interaction related to client data.
In conclusion, the frequency of vendor reviews should be tailored to the unique needs and risks of your firm. While an annual review may be sufficient for some, others may need to conduct more frequent assessments to stay ahead of potential threats. By prioritizing vendor due diligence and oversight, financial advisors can better protect their clients’ data and mitigate risks to their business.
