Figuring Out Financial Apps

RETIREMENT SERV ICES

Rapidly evolving technology has given millions access to a level of fi nancial service previously reserved for

wealthy investors working with personal advisors. The benefi ts have been tremendous: The average credit

score in the United States, for example, has risen to 695, up from 688 a decade earlier, a fact driven largely

by increased use of online credit monitoring services1. In the retirement space, 401(k) service providers report

better risk-adjusted investment performance for those using online advice, even accounting for additional fees.

But the downside of convenient digital tools includes the risk of making a mistake with self-service advice and the

unintended exposure of your personal data. The keys to maximizing the value of technology while managing the dangers

include fi nding the right application for your needs, managing your data’s exposure, and knowing when to trade your

robo-advisor for human expertise.

THREE KINDS OF FINAPPSFinancial services apps (FinApps) cover a wide variety of subjects, ranging from those narrowly focused on fi nancial issues

like retirement or student loans, to those that factor in multiple account types to calculate values like net worth or tax

obligations. Generally, though, they can be categorized into three broad groups:

In many cases, these applications are interactive. A money management tool, for example, may export account data for

use by tax preparation software or import information from an investment advice program to track progress toward a

savings goal. How interactive and easy to use they are depends on the level of sophistication. Programs range from off-

line calculation engines that allow a user to enter data for a one-time result to online “screen scrapers” that can access

bank, investment, credit card, and other account types to collect and analyze fi nancial information. While the latter tends

Focused on budgeting and

banking.

Helps plan for debt

reduction and savings

goals.

Allows for bill paying and

account reconciliation.

MONEY MANAGEMENT SOFTWARE1

Focused on calculating tax

obligation.

Provides access to the

most current IRS forms and

rules.

Validates calculations based

on built-in algorithms.

TAX PREPARATION SOFTWARE2

Focused on asset allocation

and security selection.

Provides access to

investment research.

Forecasts account growth

in different market

scenarios.

INVESTMENT ADVICE SOFTWARE3

1Techcrunch.com, April 2016

2

to be easier to use, offers more complete insight, and updates information at near real-time, the increased sophistication

comes with greater risk of exposing personal fi nancial information to hackers and identity thieves.

Individuals considering the purchase or use of a personal fi nance program need to think carefully about how they plan to

use the service, the level of complexity they are willing to navigate, and the degree to which they feel comfortable data

sharing between their personal accounts and online services. And, when thinking about data sharing, it is important to

remember that just because an application is “read only” and does not execute transactions, that does not mean it is safe

from hackers. Clever criminals can use that information to construct phishing (fake emails) and other malicious strategies

to trick users into revealing passwords or other sensitive information.

BIG DATA MAY MEAN BIG RISKSHewlett-Packard reports the daily discovery of more

than 10,000 new malware threats targeting the Android

system. And even Apple’s App Store, often considered

the paragon of technological safety, experienced its

fi rst spyware exposure in 2015 when 4,000 apps

were contaminated by a maliciously modifi ed version

of Apple’s Xcode2. More recently, ethical “white hat”

hackers from NowSecure tested the security protocols of

32 FinApps. Ten apps received a “Warn” rating, meaning

trivial data could be accessed. Eight of the apps failed

the test altogether.3 Unless FinApp users are cautious,

they risk exposure of not only personally identifi able

information, including Social Security numbers, birth

dates, and addresses; but also loss of passwords that

could give thieves access to their fi nancial accounts.

Users of FinApps can reduce their risk by accessing apps

from reliable sources such as their retirement account

service provider, bank, or credit card company. These

institutions often perform additional security validation

on apps before recommending them. Downloading apps

from a reputable provider also helps avoid fake apps, a

major source of malware that allows criminals to take

over a user’s device.

AVOIDING DIGITAL DOLLAR DANGERS

Passwords, passwords, P@s$w0rds!FinApp sites typically encrypt passwords to protect them from hackers. That can’t help, though, if a device isn’t locked and if the app automatically logs on when accessed. Be sure to lock your device anytime it is left unattended and require a password to open it. Never use the auto log-on features with FinApps and choose complex passwords with a combination of capitalization, numbers, and non-alphanumeric characters.

Protect your phone.Most people install anti-virus software on their computers, but many don’t think to do so on their phones. Several antivirus software development fi rms, like Norton, supply mobile device versions of their software. Think, too, about your Wi-Fi access. While public access is convenient, it also can make your phone vulnerable. If you must access your accounts in public, try to use cellular data, make sure your screen is not visible to others, and log off as soon as possible.

Listen to your provider.Reputable FinApp developers understand security’s importance and will publish information about how they protect your data. Look for reference to 128-bit bank level or 256-bit military level encryption and verifi cation of security protocols by third parties such as TRUSTe, VeriSign, and MacAfee. Additionally, many FinApps tied to accounts monitor for unusual activity. They will send users texts or emails about suspicious purchases or money movement that should be immediately investigated and confi rmed.

2Risk Management Magazine, June 20163VeteransUnited.com, December 2016

3

EXPERTISE STILL MATTERSFinApps can greatly enhance information monitoring and

analysis, but they can’t substitute for thorough fi nancial

planning. In addition to standard “how to” help, many online

services also offer at least phone access to a human being

with fi nancial advice expertise. These people can ask probing

questions, propose new ideas, and generally help customers

create a holistic fi nancial strategy. The application and online

tools then serve to help watch how well the users stick to the

plan and make progress toward goals.

The more complex a person’s fi nancial situation is, the more

important it may be to consult an expert. For example, if

your employer offers multiple wealth-building benefi ts such

as a Health Savings Account, a 401k plan, and a stock purchase plan, a trained advisor can help navigate decisions about

what accounts to fund and by how much. Similarly, for people with multiple fi nancial goals such as managing down debt,

saving for retirement, and funding a child’s education, an expert can help weigh the pros and cons of different account

types, forecast timing and savings amounts, and estimate the tax implications of different choices. Traditionally, these

services were expensive, but FinApp automation has reduced the cost of talking to a professional and made access to

expertise more widely available.

When working with a human alongside a FinApp, be sure you understand how the advisor is paid—by product

commissions, through additional fees, or as part of the online service price you are already paying. If access to advice

from a human being is included as part of the FinApp’s fee, be sure to understand whether there are any limits before

engaging the person so that you can maximize the value. For example, some services allow you to speak to an expert,

but only for a limited time before additional fees kick in. In such a case, users would want to begin the call prepared with

fi nancial statements and specifi c questions at the ready.

More people than ever before have access to quality, affordable fi nancial advice thanks to advances in

technology. To make the most of these services, understand the risks, be clear about your objectives, and

know when to ask for help. A good place to start is with a call to your retirement plan service provider or a

visit to their website. Find out what your employer has already made available to you through your retirement

savings plan.

© 2017 Lockton, Inc. All rights reserved. KC: 26204

The communication is offered solely for discussion purposes. Lockton does not provide legal or tax advice. The services referenced are not a comprehensive list of all necessary components for consideration. You are encouraged to seek qualified legal and tax counsel to assist in considering all the unique facts and circumstances. Additionally, this communication is not intended to constitute U.S. federal tax advice, and is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending any transaction or matter addressed herein to another party.

This document contains the proprietary work product of Lockton Financial Advisors, LLC, and Lockton Investment Advisors, LLC, and is provided on a confidential basis. Any reproduction, disclosure, or distribution to any third party without first securing written permission is expressly prohibited.

Securities offered through Lockton Financial Advisors, LLC, a registered broker-dealer and member of FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.

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