Client Confidentiality for Financial Advisors (2024)

Financial advisors have a responsibility to keep client information confidential. This responsibility is laid out by professional organization ethical standards, as well as by law. Financial advisors can only share client information without the client’s permission in limited circ*mstances, and must take steps to ensure that client records are safe from outside eyes. Confidential information includes all recorded information that is non-public, including notes and copies in both digital and printed form.

Why Financial Advisor Confidentiality Matters

Financial advisor confidentiality is important to clients for a variety of reasons. For example, if information about their financial status were to be shared inappropriately, relatives or acquaintances could view the client as a potential source of loans or gifts. Strangers might target a high-net-worth client as someone to cheat or steal from. If someone’s level of wealth becomes widely known, it can strain friendships and subject someone to criticism or judgment.

Just about any non-public information about a client can be considered confidential. As long as it is not readily available from a source accessible by someone other than the firm, the advisor has a responsibility to protect any client data that is written, recorded, spoken or otherwise set down. Only information that is available to the public or the financial services industry is not included.

Financial Advisor Client Confidentiality Standards

To address these concerns and encourage investors to have confidence in advisors’ discretion, professional organizations such as the CFP® Board and regulatory bodies such as the Securities and Exchange Commission (SEC) have created standards of ethical conduct that include requirements for client confidentiality. The standards vary in detail, but all generally proscribe sharing any and all confidential information without the client’s express consent, with few exceptions. Here are a few examples of confidentiality requirements.

National Association of Personal Financial Advisors (NAPFA). This professional organizationfor fee-only financial planners takes an uncomplicated approach to client confidentiality in its code of ethics. It simply states: “NAPFA members shall keep all client data private, unless authorization is received from the client to share it. NAPFA members shall treat all documents with care and take care when disposing of them. Relations with clients shall be kept private.”

CFP® Board.The CFP® code of ethics describes in detail how CFP®s can share client data for “ordinary business purposes” only with client consent and only with a limited set of people, including employers, partners, employers, attorneys, accountants, auditors and designated client representatives. Exceptions include when law enforcement or regulators are investigating possible illegal acts and when needed to defend against civil lawsuits. CFP®s must craft confidentiality policies describing their practices for handling and storing client information and notify clients in writing about them.

SEC. The SEC confidentiality standard describes a comprehensive set of practices required by law for advisors registered with the regulatory authority. Among other things, it extends prohibitions against sharing client data to ex-employees and requires advisors and employees to notify the firm’s chief compliance officer if an exception is being sought or if there are known threats by a third party to expose client data.

The SEC also says advisors and employees should avoid discussing client information in public places including restaurants, hallways, elevators and airplanes. Using cell phones, speakerphones and public phones is warned against if there is a chance someone might overhear. Physical records such as files are to be kept in locked cabinets and computer files must be password protected, while office computers are to be locked before workers leave for the day. Advisors and employees are also told not to remove client data from the office premises unless necessary.

Bottom Line

Financial advisors are required to treat client data with care and avoid sharing it with anyone without the client’s authorization. This general requirement is laid out in standards of ethical conduct set by professional associations as well as legal requirements from federal regulatory agencies. Only limited exceptions are allowed, including when sharing is necessary to work with attorneys, accountants, auditors and other professionals and to comply with legal or regulatory investigations. These restrictions protect clients from judgment, embarrassment or potential exploitation due to having their financial situations known to family, friends or others.

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