How financial advisory firms can practice emergency preparedness

As part of SEC compliance requirements, advisers must have an emergency plan and actually test that plan periodically. If you are a responsible adviser, your firm has a written emergency plan and everyone has read it. But I'm willing to bet that you never actually carried out an emergency drill. Why not? Because it is difficult to construct a fake incident without potentially negatively impacting clients. I've thought of various strategies. Taking the word test literally, I have given my employees an occasional pop quiz with questions consisting of “What would you do if…” and “Who would you call if…” At some point, I planned on making an early morning call to employees to tell them that the office would be inaccessible that day. (The excuse could be a water main break, a fire or a power outage.) Then, I could observe how closely they followed our written emergency plan. But, I thought about how that drill might cause inconvenience or anxiety to our clients. So, my current idea is to only make that call to one or two employees at a time. I'm hoping that might effectively test the employees without actually disrupting operations. As it turns out, we will soon be required to vacate our office for a full week. (Yes, I renewed the lease so the space is being refurbished.) Although the timing is not a surprise, it will give us the opportunity to test many of our procedures. Because we are a paperless office with lots of great technology, we feel confident that we can pull this off without a hitch. The steps we will be taking for this challenge are the same steps we would take in an actual emergency — except we have the luxury of time. The first stage is notification. We must inform employees, clients and vendors. We have a complete list for each category in the written emergency plan. (Each employee has copies available at work, at home and online.) We've addressed the situation in team meetings and have emailed all clients and vendors. The email provides all necessary information: timing of the vacancy period, contact info (which does not change), alternative meeting space (conference room in office next door) and assurance that throughout that week it will be business as usual. The second stage is planning. Each employee will test their home computers to ensure that remote connectivity works. We will create voicemail messages reminding clients we are not in the office at that time. We will also test call forwarding. We made arrangements to have mail forwarded or picked up. And, we made sure everyone knew that my home would be available for meetings between employees or for those who wanted to work among others. The third stage is implementation — actually doing our work! We will remote in to our computers or to web services for the following functionality: • Outlook emails and calendars • Files (PDFs, saved documents or spreadsheets, presentations, etc.) • Research programs • Portfolio data • Custodians • Rebalancing • Tax planning and preparation • CRM • Remote meeting software • Financial planning tools We will schedule client meetings in the neighbor's conference room and have employee get-togethers at my house. When our one-week challenge is complete, we will come back to an office with sparkling new paint and carpet. As a result of this exercise, I believe that emergency plan testing can be done for each phase one at a time. For example, we can test our notification process by sending out a mass email (about some current event not a pretend emergency). We can test our planning process by having everyone practice remoting in from their home computers. We can test our implementation process by periodically asking one or two employees to work from home. Now that we're in the slower summer season, it might be a good time to start testing your firm's emergency plan. Sheryl Rowling is head of rebalancing solutions at Morningstar Inc. and principal at Rowling & Associates. She considers herself a non-techie user of technology.