Q&A Blog Series: The Secure Path to Digital Leadership

Investor communications has been transitioning from physical to digital platforms for more than a decade, but the COVID-19 pandemic forced a dramatic acceleration in this trend. The 2020 proxy season, which coincided with the onset of restrictions on large indoor gatherings and travel, was highly impacted. Almost 2,400 companies in the U.S. opted for virtual annual meetings in the first half of 2020, as compared to 318 in all of 2019, according to the Report on Standard Practices for Virtual Shareholder Meetings.

This rapid shift to digital platforms was driven by necessity, but few in the industry expect a reversal. Mediant is exploring how the investment industry can navigate its digital future in our Q&A Blog Series. In this post, Chris Nobles, Chief Technology Officer, and Stacey Robinson, Chief Information Security Officer, discuss the opportunities and cybersecurity challenges for broker-dealers recalibrating after a momentous year.

Q: What technology changes happened as a result of COVID and what more can we expect in 2021?

Chris: The pandemic spurred two key changes. First, digital platforms became the primary source for interacting with investors. Second, the industry was compelled to devise a framework to enable different technologies to interact. Identifying investors and granting access to shareholder meetings were challenges in 2020, but industry working groups are actively developing APIs that will enable shareholders to seamlessly access meetings hosted by any industry provider regardless of communications platform.

Stacey: From a security and compliance perspective, getting the industry to cooperate and agree on digital standards for identifying beneficial holders is one of the key challenges. There is a big push to have the first version of those APIs ready in time for the 2021 proxy season.

Q: How can firms be leaders in this digital future?

Chris: Investor communications has traditionally been viewed as a compliance matter. That's no longer the case. Digital platforms offer new possibilities for improving shareholder engagement, not only within their chosen broker’s platform and their own investments, but potentially with issuers and other industry stakeholders. The leading broker-dealers will be the ones that embrace this opportunity.

Stacey: Adding to that, digital platforms enable brokers to use multiple communications channels to improve engagement. Narrow interpretations of the SEC’s electronic consent rules have limited many firms to email, but now investors can interact through text messaging, mobile apps, or even Amazon’s Alexa. Each channel has its own nuances for presenting information and handling investor interactions. It will be interesting to see how the SEC and the industry collaborate on this issue.

Q: What's the industry doing to ensure a more compliant and secure environment?

Stacey: We're collaborating on common standards for identifying beneficial and registered shareholders. The aim is to have a more open but also secure approach that transfer agents and beneficial providers can rely on with confidence.

Q: What further industry collaboration would you like to see?

Chris: The COVID-driven shift to virtual annual meetings demonstrated that investors already use platforms from multiple providers. Most industry stakeholders have committed to finding technology solutions that make this as seamless as possible, but it’s a big herd to bring together and we need to move fast.

Stacey: If we can standardize open APIs that the industry can rally around, it will be a game-changer. The different players involved need to understand each other’s interests and priorities.

Q: What other security and compliance concerns are top-of-mind among broker-dealers?

Stacey: Broker-dealers’ compliance and cybersecurity teams have their hands full. Setting investor communications aside, we have the fallout of the SolarWinds breach (a supply chain attack trojanizing SolarWinds Orion business software updates to distribute malware), the rise in state-sponsored and ransomware attacks, and the need for advanced threat protection. SolarWinds dramatically revealed how partners and suppliers can be the weak link in enterprise security, so we’re working with our customers to give them confidence that our software supply chain does not bring risk into their environment.

Q: What are the top three actions broker-dealers can take in 2021 to set themselves up for success?

Chris: Broker-dealers were under pressure to update their technology platforms to serve the next generation of investors even before COVID condensed several years of progress into a matter of months. The bar has been raised for what investing and investor communications will look like in a few years, so my first recommendation is that firms carefully evaluate providers to ensure they pick the right long-term partners.

Second, firms should actively support the development of APIs that will enable cross-industry interaction. Operating with these will expand opportunities for interacting with shareholders and issuers. Firms that streamline data and facilitate engagement across the full range of communications channels will have the advantage in the future.

Stacey: To add a third recommendation, I think firms need to recognize the cybersecurity threats arising from people working from home. Most people predict that remote working is here to stay to some degree. Firms need to establish strong fundamentals, such as secure access services and zero trust networks.

Q: In an earlier Q&A blog post, your colleague Gussie Tate, Mediant’s Head of Operations, stated that digital technologies create new opportunities to engage, educate and inform investors. What’s your reaction to this?

Chris: That’s very true and essentially the point of my first recommendation in the last question. Investment platforms are no longer simply about transacting. Investors increasingly expect immediate access to information and tools for interaction, tailored to their needs, on whatever channel they happen to be using.

Stacey: The technical challenge is bringing all that together. Platforms need to be robust and secure, even as they flexibly serve a generation of investors used to doing everything on their phones.

Q: Will digital platforms generate excessive information?

Stacey: Digital platforms mean it no longer has to be one-size-fits-all. You can fine-tune investor communications, using machine learning to intelligently curate engagement content alongside regulated communications.

Chris: It's no longer a matter of “we're sending you this because we have to." Regulated communications create engagement opportunities, with smart analytics helping broker-dealers to understand what investors value and remove extraneous information.

Q: What current technology innovations will generate the biggest impact in two years?

Chris: COVID may have forced the hands of many broker-dealers, but as firms embrace digital platforms for investor communications, I think we’ll see a more open, cooperative and streamlined industry take shape. This should improve investor access, increase engagement, and support the next phase of growth.

Stay tuned for more insights from other Mediant executives on navigating a new digital world.

In the meantime, please contact us with any questions or comments about this post.