Attitudes towards the cloud vary significantly depending on who you talk to, where they are based, what sort of wealth manager they work for, personal awareness, tech savviness and more.

These days you are as likely to meet someone who thinks the cloud is an obvious solution as someone who still hesitates regarding data security and other perceived barriers.

Cloud is not the default position for all of us – yet. But with a little help from those that deal with cloud migration day in day out, perceived barriers to adoption soon come down.

Robert Roome, Chief Strategy Officer at Wealth Dynamix explains that people sometimes misunderstand the art of the possible when it comes to cloud.

“The cloud often means different things to different people. But it’s fundamentally about placing data off-premise and into the hands of a cloud software provider. Obviously, that goes against the grain when it comes to sensitive client data but it’s not a case of just handing over data and it being mixed in with who knows what in a public cloud. Security is high in the cloud and there are private clouds as well as local clouds. A big public cloud is not the only option.”

Indeed, data security is paramount in wealth management. It’s an industry where clients place their trust in the wealth manager to not only manage their affairs but also keep them private and away from prying eyes. For some wealth managers, the actual storage of client data in-house forms an integral part of the relationship of trust with their clients. In that context, managing client data in-house is the mindset and shifting that will take some doing.

Nadir Muthu, Senior Management Consultant at Synpulse comments: “Wealth managers are sometimes also wary about using the cloud because they don’t want to fall foul of the regulator. I see quite regularly clients who are unsure as to what is and isn’t allowed and the steps they need to follow. And with good cause! Regulators tend to differ from each other on their understanding and enthusiasm for cloud.”

Security is certainly a huge issue. And with good reason.

The global average cost of a data breach in 2023 was US$4.45 million per incident, a 15% increase over three years.

That is not something any wealth manager wants to think about. The reputational cost could be even higher – potentially catastrophic – in an industry that relies on trusting the wealth manager to keep data safe, secure, and private.

And for all the talk of the cloud being secure and using encryption as standard, peoples’ understanding of what that actually means and how it all works is variable.

Robert Roome comments: “Some wealth managers that we talk to are worried about the security of data; they have a basic understanding of what data encryption is and how it works but they sometimes think that encryption works on a single key – gain access to the key and you have the castle and its contents in your hand.”

Not so. Tokenisation consists of transforming sensitive data into non-sensitive equivalents. This means that client-identifying data (CID) is not held within the cloud provider. Instead, the cloud holds only tokenised data.

“Proper tokenisation means that even if someone got hold of the key, all they would find within the castle or the cloud would be highly tokenised data – which is useless. It’s a double layer of security. It means that any data whatsoever that could lead to someone being identified is encrypted and there is no ‘client data at rest’ or unencrypted data,” Robert Roome explains.

Nadir Muthu comments: “In some areas such as Switzerland and Singapore, the data is encrypted before it leaves the wealth manager so that actual client data never leaves the wealth manager. Only already encrypted data is held in the cloud. In other places like the US and UK where comfort levels are higher, the data is sent to the cloud and encrypted there. This is called 0% data retention.”

Both Robert Roome and Nadir Muthu agree that getting over these barriers is relatively easy to do once the concept of tokenisation and how it works is explained and understood.

Nadir Muthu adds that the appeal of the cloud when it comes to facilitating artificial intelligence (AI) can be a good nudge for a wealth manager to at least consider cloud usage. “Having data in the cloud that is already clean and normalised, and then encrypted makes for a much better feed of data to AI and thus better output. This is something that many banks are looking at with interest,” he says.

So, once on board with the idea then how can wealth managers migrate data to the cloud safely and with minimal hassle?

This question is something that both Robert Roome and Nadir Muthu see quite often.

Nadir comments: “Incumbent banks in particular have legacy systems and processes. They can tend to get weighed down by everything becoming a project with intense processes and procedures to go through before they can release data and control to third parties. Digital banks, meanwhile, want to do things quickly and without undue fuss. They likely already have a lean tech stack which makes things much easier.”

Robert adds: “With a recent client we got to proof of concept (PoC) within six weeks with all the security and signs offs done. Inevitably there is more work to do but it serves to illustrate that it can be done,” he says.

Nadir points out that a very large part of successful data migration into the cloud is working collaboratively. “Wealth managers of all shapes and sizes need to know that they are not just getting the software they are also getting the people, the proposition and the experience from their vendor to make sure that any migration is a happy one.”

He also mentions the need for vendors to be able to work with each other as well as existing systems within a wealth manager’s tech stack to maintain operational equivalence.

“Collaboration and partnership are important on both the human and systems front,” he says.

Ultimately, says Robert Roome, the direction of travel is clear and the benefits of the cloud when it comes to how a wealth manager views, uses, and stores data are clear. Worries over security, control and migration soon disappear if the wealth manager partners with a vendor that can support and instil confidence and knowledge around security and the migration process.