The Hidden Risks of Outsourcing IT Support Out of State
Outsourcing IT support to distant providers may seem cost-effective at first glance, but in reality, it invites hidden risks, especially for financial service providers.
Financial service providers (financial advisors, accountants, wealth management, and tax professionals) handle classified forms of data every day, from legal documents to tax records to bank account numbers. Let’s dig into the problem.
1. Blissful Ignorance and Security Gaps
A recent IBM study shows that third-party involvement is implicated in 52% of data breaches in the financial sector, with the average cost of such a breach reaching $4.76 million. The danger lies in the fact that smaller financial firms often lack a dedicated, in-house IT department, which can lead to a lack of understanding of their security posture. Weak credentials, unpatched systems, unencrypted devices, exploited cloud-based systems, or even subcontracted seasonal staff can become the open door that attackers exploit, and they may never know a vulnerability exists until after the damage is done. A breach can quickly escalate into liability, reputational loss, and regulatory fines.
2. Hidden Costs and Loss of Control
Outsourced contracts can surprise you with additional charges, like onboarding, scope changes, request service fees, or early termination penalties. You may also lose crucial control over operations. If something goes wrong, aligning service quality and responsiveness can become complex, and your business continuity may be at risk.
What appears to be savings on paper often masks the reality: many outsourced IT vendors build contracts to protect themselves first, not the client. Worse, decision-making power shifts away from your firm, leaving you stuck in rigid processes and service-level agreements that don’t adapt to your needs. For financial service providers who depend on agility, every hour of delay translates into lost trust and potential regulatory non-compliance.
3. Regulatory Scrutiny and Compliance Risks
Financial institutions are under growing regulatory watch regarding outsourcing. For instance, the Basel Committee — representing global banking regulators — mandates that boards are ultimately responsible for oversight of third-party services and require documented due diligence and continuity plans. When was the last time you or your board reviewed your business continuity plan or studied your recovery time objectives? Can a technical support person from India or the Philippines be up-to-speed with Administrative Controls like these, or even the Privacy and Data Breach laws for your state? Outsourcing overseas may complicate compliance with frameworks like GLBA, increasing audit complexity and legal risk.
4. The Myth of One-Size-Fits-All Solutions
It’s a common misconception that a generic IT package fits everyone. What works for a construction company is the same solution for a dentist. For financial firms, security needs are unique, specialized, and non‑negotiable. Outsourced Managed Solution Providers (MSPs) operating remotely, often with limited insight into your firm’s workflows or regulatory environment, may default to generic, checklist-based solutions. That’s a recipe for misalignment, missed controls, and vulnerabilities.
Misapplied standard templates fail to address the nuances of handling tax records, retirement data, and other classified client information. Without local knowledge and customization, firms can end up under-protected, or worse, inadvertently exposed.
5. Escalating Threat Landscape for MSPs Themselves
Even MSPs are under fire. A recent study found that 69% of MSPs experienced at least two breaches in the past year, and many providers struggle to keep pace with rising risks and expectations. Relying on an MSP (especially outside of your local area) can introduce risk if they lack the internal resilience and investments needed to stay secure.
Why Staying Local Makes a Difference
Staying local isn’t just about convenience. It’s about alignment, responsiveness, and trust. A local IT partner understands your regulatory context, has skin in the game, and can customize your strategy for compliance, performance, and real-world needs. When you handle finance, trust isn’t optional. It’s foundational.
Let’s get started. Ask me how.
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