You may have heard about the attorney client privilege and the legal rules used to safeguard client private information by professional advisers like accountants and lawyers.

Business valuation engagements are no exception. There is significant amount of private client information that must pass back and forth between the appraiser and client. Not only does the appraiser need to know about the the business, including carefully guarded trade secrets and business strategic plans, but highly sensitive personal facts about management and key employees need to be shared as well.

Attorney-client privilege to protect client privacy

Business people can expect full protection and non-disclosure of their private data whenever they deal with licensed professionals such as accountants and lawyers. The legal framework in such cases is based on the attorney-client privilege. Under the law, the licensed professional is obligated to safeguard client information to a very high standard of care. Any breach of this fiduciary duty exposes the professional to significant legal liability. Unsurprisingly, professionals are very careful to protect their clients privacy by implementing a set of measures that are fully incorporated into their practice.

So if your business valuation is handled by a licensed accountant or lawyer, you should expect the same level of privacy protection as with any other engagement. Importantly, the private information you hand over to your adviser should never be shared with any third party. This applies to data stored electronically on your adviser’s computer systems.

Web based valuation tools – is your private data at risk?

But, as you might surmise, the real world is not without new challenges. There is a proliferation of web based financial tools that are offered to unsuspecting business owners and advisers, usually on a recurring fee basis.

Web software vendors not responsible to keep your private info safe

More importantly, the highly sensitive private information is now handed over to a third party that is under no obligation to keep it safe and secure. This third party usually manages online servers that store your business and personal data. No longer does your accountant, appraiser or attorney have any say in what types of security measures are used to protect your vital info.

What happens if there is a malicious breach of security and your business critical and personal data are stolen or lost? The web tools vendor is not a professional, and does not fall under the attorney-client privilege rules. Unless you have signed a full indemnity agreement with the vendor, you are fully exposed.

If you are a professional adviser, you are still responsible to your client under the attorney client privilege. Don’t expect the web based tools vendor to look after your interests in this case. They do not fall under the legal requirements to protect private data of parties that are not their direct customers. Read your license agreement, and you will be unlikely to find an indemnity clause that makes the software vendor responsible for the loss of such info.

If you are a business person discussing an appraisal project, ask your service provider if any web based tools outside their full control will be used to manage your private info. If yes, ask your provider about a plan in place to handle loss of such data. If you do not get a satisfactory answer, insist that your business appraiser keep all your information under their full control.

That way all your business and personal info falls under the attorney-client privilege protection.

Keep client private info under your full control

The best way to ensure this is the case is for the business appraiser to keep all client information directly on their network under their full control. Do not expect that an unrelated web based tools vendor will apply the same level of protection. Under the law, they are not obligated to do so, and the additional cost of implementing the security measures is unlikely to be in their business plan.

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