Harvey and Irma — Reminders that advisory firms need solid continuity plans

Clients, shaken by the scale of hurricanes, will be in need of their financial advisers' reassurance that their assets are safe and accessible.

Sep 9, 2017 @ 6:00 am

According to one​ version of Murphy's law, nature always finds the hidden flaw.

No doubt Hurricane Harvey uncovered the hidden flaws in the emergency plans of many companies, including financial advice firms, in the Houston and Beaumont areas in the past week, and Hurricane Irma likely is finding many more as it rampages into the southern part of the nation this week.

Harvey, and now Irma, are reminders that financial advisory firms, no less than other small and even large companies, need deep and resilient plans that will allow them to continue to service their clients in the depths of an emergency and during recovery efforts.

While the SEC's proposed business continuity rule likely has encouraged many registered investment advisers to establish such plans, the ravages of Harvey should spark all financial advice firms to have emergency plans and to review them to ensure they are adequate.


It will be months, perhaps even years, before most of the businesses hard-hit by these recent disasters return to normal, but advisory firms should recover more quickly than most — if they have secure and undamaged backup sites for their client records and the computer systems on which they rely.

This is important because, just as clients will need to obtain food and building supplies while they rebuild their homes — and their lives — they may also need to access some of their assets to finance that rebuilding. By one estimate, only 25% of Houston homeowners had flood insurance. Many may need to access their financial assets by selling stocks or bonds, even if they receive insurance payments, because the insurance likely will not cover all the costs.

(More: IRS provides 401(k) tax relief due to Hurricane Harvey)

Clients, shaken by the scale of such disasters, will also be in need of their financial advisers' reassurance that their assets are safe and accessible. Unfortunately, says Thomas Phelps, chief information officer at Laserfiche, many financial services firms still do not store their backup files in the cloud, and many have their emergency plans saved on laptops, which might be exposed to damage or be inaccessible in an emergency situation. Cloud storage makes client and firm data secure, safe and accessible from virtually anywhere you can access the internet.

Given the breadth and scope of these hurricanes, it's possible that not only were many main offices flooded, but so too were backup sites. This is a reminder that a backup site should be in a different geographic location than the main office. However, the home office staff must be able to reach it in a reasonable amount of time. A backup site that is fully operational is of zero use if it can't be reached by staff.

Employers must also be prepared for the absence of critical members of their staff, who may be dealing with their own emergencies and losses, and who, even if they are able to reach the office, may need emotional support. Cross-training of the staff is essential, and each firm must have an emergency call tree so that critical staff members can be contacted.

(More: Hurricanes could be one reason September is such a stinker for stocks)

The entire staff must be familiar with the emergency plan: how it is to be implemented and where vital information can be found. Emergency drills must be held regularly, especially in areas of the country likely to experience natural disasters such as hurricanes, flooding and earthquakes, to test the plan.

Backup sites must have secure sources of power. If the backup sites have no power because of damage to power stations, power lines or substations, they are useless until power is restored.

In some locations, backup sites must be prepared so that employees can live onsite for a few days in an emergency such as a Hurricane Harvey, Hurricane Katrina, Sept. 11 or major earthquakes in California that can make commuting difficult.

Emergency plans must be reviewed regularly — they cannot be considered "one and done." The operations of financial firms are never stationary; new clients, new technologies and new investment operations are constantly being added or subtracted, and firms are regularly affected by new regulations.

These recent hurricanes have served as strong reminders to firms providing financial planning or investment advice that they must have well-designed emergency plans to deal with natural disasters — or man-made ones, for that matter.


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