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Financial Advisory Firm Turns to the Cloud for Document Security

A data breach at a school got David Hubbard, president and founder of Chicago wealth management firm Exemplar Financial Network, thinking seriously about data security.

A database and computer system at the school, on whose board Hubbard serves as president, were hacked by a European organized crime ring. The fraudsters created several fake new employees in the school's system using the real identities of online bank account holders, moved payroll funds into those accounts, and wiped the accounts clean.

"The FBI said we would never see that money again. And we didn't," says Hubbard. In a meeting with the FBI, he recalls, "I got a dose of reality when they said organized crime is looking at the easy targets," Hubbard says. "Right now they're going after softer targets such as school districts; they're going to move to banks and financial advisors."

Hubbard worried about his own business and clients, for which Exemplar holds billions in custodial funds. "I had to do something to make sure my clients are protected," he says. In addition to its own financial advisors, Exemplar provides compliance, service and training for financial advisors at offices throughout the Midwest, including 15 banks and credit unions. All told, its network includes 140 financial advisors.

Like many companies, until recently Exemplar shared documents with clients through email and regular mail, occasionally a fax machine. But "when you send information via an email, it's not secure — an organized syndicate can monitor the email traffic and look for specific information to build a dossier," Hubbard says.

He had his staff begin researching options for an online lockbox that could be used to store important client documents. And in his own case, such an electronic vault would allow his six children, who live in different parts of the country, to access his records in the event he became ill or for some reason needed help. "They wouldn't have to get a key and go to my bank. It would be much more convenient," he says.

Among the selection criteria for the new system were strict security and ease of use for staff and clients. "I wanted to make sure we had total encryption in the process, so even if the system were hacked into, the data would be gobbledygook," Hubbard says.

After looking at several products, the firm chose Lockbox, a company based in Melbourne, Australia that opened a Silicon Valley office in May. Lockbox provides portal software that compresses and encrypts documents before uploading them to a cloud service such as Amazon's S3. The due diligence process included gaining approval from Exemplar's custodian, Cetera.

Exemplar is in process of rolling the service out throughout its network. It's also setting up attorneys, accountants and others its advisors work with on the service.

Clients are now encouraged to forgo email in favor of Lockbox when sending the company any information that's sensitive or private. They log in to Exemplar's website, click on Lockbox, and drag and drop documents from their desktop to the portal. The advisor receives an email letting him know new documents in Lockbox await his review.

Over time, the firm will encourage clients to keep all their financial documents, including Social Security cards, birth certificates, death certificates, wills, trusts, house deeds, and life insurance policies, in Lockbox. "All the stuff that's highly secure that you might normally put in your safe at home or a safety deposit box at the bank, could be scanned and stored in Lockbox," Hubbard says.

One thing Hubbard likes about Lockbox from a security point of view is that no one but Exemplar has access to the keys that can decrypt the documents stored therein — neither Lockbox nor Amazon can get to them.

Behind the scenes, Lockbox embedded its portal software in Exemplar's website using an i-Frame. The Lockbox software provides the compression, encryption and transmission of files to Amazon's S3.

Hubbard expects that in addition to giving him peace of mind, the service will help his firm retain clients. Once a customer has uploaded all his important financial documents to Exemplar's service, "I'd have to do something really bad for you to go through that process again to switch," he says.

Lockbox's founders have high hopes for their service in the U.S. "In the rush to get people into the cloud, to take advantage of the economics and the fact that it's always on and widely available, people have neglected to think about security and privacy," says Peter Long, CEO. "One thing that is starting to be realized is if you place information on somebody else's disk, it's no longer yours."

Lockbox plans to market its technology to banks for purposes beyond financial advisory; for instance, it could provide a secure portal for loan documents. It estimates the U.S. market for its service at about $1 billion.

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