Continuity and Succession Planning Under the Uniform Securities Acts of 1956 & 2002

Continuity and Succession Planning Under the Uniform Securities Acts of 1956 & 2002

You've worked hard to build a valuable business that puts your client’s needs first. Who is going to continue that work when you're no longer active in the business?

Considering succession?  We hope so. You've worked hard to build a valuable business that puts your client’s needs first. Who is going to continue that work when you're no longer active in the business?

Very soon, that question may not just be an important business consideration, but rather a regulatory requirement. The North American Securities Administrators Association (NASAA) has proposed business continuity rules that would require investment advisers to write and implement continuity procedures in case the primary adviser unexpectedly departs or the firm is hit by a natural disaster.

The NASAA is an organization geared toward investor protection. It doesn't have any regulatory authority in its own right. However, its recommendations are often adopted by state regulatory agencies. Regulators from all 50 states are represented in NASAA's membership. Although states are not required to adopt NASAA recommendations, they do give the proposals serious consideration.

The NASAA's new rule proposal would cover all kinds of business interruption, from natural disasters to fires to advisor injuries and even death. Advisors would be expected to have a plan in place to continue service and communication to their clients. They would also need to have a plan to provide clients with access to their funds even if the advisor's office isn't open or functional.

Each advisor's plan would likely be specific to his or her own circumstances, so it's difficult to say exactly what every advisor needs to do to meet the proposed rules. However, there are some general areas that should be addressed:

 

Data backup: How do you store important client information? Is it in paper form in filing cabinets? Is it saved on a hard drive? Is it in the cloud? Some combination of the above?

No matter your data storage system, you need to have a plan in place to secure that information and keep it accessible in the event of an emergency. That probably means using some kind of secure, cloud-like system. Even for paper information, you may want to scan and store the data digitally.

Also, you shouldn't be the only one with access to the cloud. Make it accessible to a partner, key support team member, or someone else who can responsibly access the data in case you're unavailable.

 

Access to funds: This is a critical area. Should your area be hit with some kind of natural disaster, your clients may have a real and urgent need to access their funds. If you should suddenly pass away or become unable to work, clients may wish to make other arrangements for their money.

You have an obligation to give them that ability. Can they access their accounts remotely? Does your custodian have a customer service number that clients can call directly? Is that information readily available for your clients? Is it on statements or on your website?

 

Alternate communication systems: If your systems suddenly crashed, would you have all the information you needed to effectively communicate with clients? What about with employees?

You should set up a communication tree within your team so that each member knows who to contact in the event of an emergency. There should also be a communication plan in place to reach out to clients. You could perhaps assign batches of clients to each team member so you can all quickly make contact with your client base.

There are many other areas to consider, including regulatory reporting, physical location alternatives, and financial and operational assessments. For solo advisors, this proposal should underscore the idea that continuity and succession should be imperative priorities.

 

Phillip Flakes is Co-Founder and CEO of Succession Link

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