SEC proposes rule to require business continuity plans for advisers

RIAs would have to prepare ahead for potential business disruptions, including a planner's sudden death

Jun 28, 2016 @ 3:12 pm

By Liz Skinner

The Securities and Exchange Commission unanimously proposed a rule Tuesday that would require registered investment advisers to have written business continuity plans, as well as details for how they would transition client accounts, should a disruption occur.

The goal is to make sure an advisory firm's clients are not harmed if there is a major interruption to the regular operations of the business, including the death or incapacitation of an adviser.

“While an adviser may not always be able to prevent significant disruptions to its operations, advance planning and preparation can help mitigate the effects of such disruptions and, in some cases, minimize the likelihood of their occurrence,” SEC chairwoman Mary Jo White said in a statement.

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The plans need to preserve the continuity of the firm's services in the event of a natural disaster, cyberattack, technology failure, departure of important personnel and other such events, according to the proposed SEC rule. It would require advisers to annually review those plans and retain related records.

“We are encouraged that the proposed rule is principles-based and would allow each investment advisory firm to tailor its business continuity and transition plan as appropriate for its own business model,” said Karen Barr, chief executive of the Investment Adviser Association, about the SEC proposal.

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

Last year, 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, but each state must adopt its own rule separately.

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