Harvey tests whether advisers need more emergency planning

SEC suggests a final decision on its proposed continuity rule with heightened requirements will come in April

Aug 28, 2017 @ 2:14 pm

By Liz Skinner

Meyerland area of Houston during Hurricane Harvey. Photo by Truett Alan.
+ Zoom
Meyerland area of Houston during Hurricane Harvey. Photo by Truett Alan.

Hurricane Harvey will be a noble test of whether financial advice firms need stiffer emergency planning rules.

The Securities and Exchange Commission proposed a rule in June 2016 that would require registered investment advisers to not only have written business continuity plans but also details for how they would transition client accounts, should a disruption like the devastation in Houston occur. Officials have said damage from widespread flooding and power outages could continue to shutter businesses for weeks.

The SEC already requires some emergency planning for advisers — such as an obligation to have written policies and procedures that address continuity — but the agency is seeking to further ensure clients are not harmed if there is a major interruption to the regular operations of the business.

"Natural disasters like Hurricane Harvey are a vivid reminder to all advisory firms that they need to have a robust business continuity planning program up and running," said David Tittsworth, counsel in Ropes & Gray's investment management practice. "Advisory firms should understand that they need to have a plan in place to communicate with their clients, employees and key service providers during natural disasters."

Regulators began looking at the need for such a rule after some financial advisory firms had trouble bouncing back after Hurricane Sandy in 2013.

(More: Why financial advisers need to actively manage their continuity plans)

Since the proposal's release last year, the agency has received comments from advisers and industry groups suggesting they support the mission of the regulation, but they don't want financial advisers who don't have a plan to be liable for fraud.

Instead, they'd like to see additional guidance from the compliance program.

The SEC has indicated it plans to take final action on the proposed rule in April 2018.

Many advisory offices in Houston were shut down Monday, but some advisers were available to help clients remotely, and some relied on backup from their home offices.

Mike Rome, CEO at Chilton Capital Management in Houston, said his firm's been able to operate so far, even though its offices are surrounded by water.

"There's a major bayou that goes right through the city that's over its banks and looks like a lake," Mr. Rome said from his 13th floor office. "We went into our emergency situation and we've been taking care of everything virtually."

He said office lines have been transferred to cell phones and the firm set up trading from remote places.

(More: Economists predict long-term effects of Harvey will remain local)

At Icon Wealth Partners, founding partner Blake Pratz said their Houston building is closed and all the nearby roads are shut down. Its employees are working remotely.

"We're just following our continuity plans we've got set up," he said. "We just can't get anywhere, everything is under water, and it won't stop raining."

The North American Securities Administrators Association, a group of state securities regulators for financial advice firms with less than $100 million in assets, approved a model regulation requiring continuity plans in 2015. But each state must adopt its own rule separately. So far, Colorado, Illinois, Iowa, Nebraska, Pennsylvania, Vermont and Virginia have adopted that model rule, and an eighth state, Washington, has its own business continuity rule that's similar, according to Bob Webster, NASAA's spokesman.

"I predict that when the water drains in Houston, you're going to see that business continuity plans worked quite efficiently," said Jay Baris, chairman of Morrison & Foerster's investment management practice. "Hurricanes Irene and Katrina were wake up calls."

Greg Iacurci contributed reporting to this story.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Oct 17


Best Practices Workshop

For the fifth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


Vanguard's Ameriks: Where the elephant in the room will grow next

That noise you hear is Vanguard's ETF's growing. John Waggoner sits down with Vanguard's John Ameriks to discuss where the firm will grow next.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Video Spotlight

Path to growth

Video Spotlight

Path to growth

Latest news & opinion

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

Broker-dealers and RIAs at loggerheads over fiduciary rule delay

Companies and groups weighing in with comment letters have vastly different viewpoints on the delay's potential impact.

7 conferences taking advisers beyond financial services

Consider investing some time in learning to build corporate culture, be a better listener and other important skills.

SEC warns RIAs about exaggerating investment performance and other misleading advertising practices

The regulator's Office of Compliance Inspections and Examinations issued a risk alert Thursday about potential violations of advertising rules.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print