There's no reason for advisers to put off making continuity and succession plans, especially now that regulators are taking notice.
"Why do today what you can put off until tomorrow?” — an inversion of Ben Franklin's virtuous commandment — is apt for continuity and succession planning. But it won't hold water as an excuse when regulators come knocking.
For years, the advice industry's dirty little secret has been that while no adviser worth his or her salt will dismiss continuity or succession planning as an important component of his or her business, few have such plans in place. Fewer still review the plans on a regular basis to ensure they remain viable.
That lack of planning has caught the attention of Mary Jo White, chairwoman of the Securities and Exchange Commission, and it sounds like she means business.
“The staff is developing a recommendation to require investment advisers to create transition plans to prepare for a major disruption in their business,” Ms. White said in a Dec. 11 speech. “The process of creating such a plan in advance of an actual severe disruption in the adviser's operations could better prepare advisers and their clients to deal with a transition and its attendant risks.”
The push shouldn't come as a surprise. Just over a year ago, the SEC issued a risk alert after reviewing the business continuity plans of 40 advisers following Hurricane Sandy, when many advisers in the Northeast had to shut down for days or even weeks.
"FIDUCIARY OBLIGATION'
In addition, rules already on the SEC's books (specifically, Rule 206(4)-7 of the Advisers' Act, for those who want to look it up) clearly state that the adviser has a “fiduciary obligation” to protect client interests in the event the adviser is unable to provide his or her services.
Finally, the North American Securities Administrators Association is expected to vote at its spring meeting in April on a model rule on continuity planning.
As Brian Lauzon, managing principal of AdvisorAssist, a compliance and management consulting firm, told InvestmentNews, advisers work hard to make sure their clients' finances — including business-related activities — are in order to the end of their lives. so why don't they do it for themselves?
Advisers doggedly build their businesses, deepening relationships with clients and laying the groundwork for long, rewarding careers. It only makes sense to implement a program to ensure that all that effort isn't wasted if something unforeseen happens.
And unforeseen things happen. Every day.
To be clear — advisers should have a continuity plan, to keep their business operating and client needs handled in the event of an emergency; and a succession plan, which provides a methodical transition of a business at the end of a career.
Though developing such plans isn't necessarily enjoyable or something that can be done quickly, it's critically important.
If advisers truly care for their clients, continuity and succession plans are as essential as business development strategies and daily schedules. And just think how relieved you'll be when it's done.
Once established, though, plans need to be reviewed at least annually. They shouldn't be stuffed in a three-ring binder and stuck on a shelf or in some electronic file.
END OF LIFE
In fact, because continuity and succession plans require the cooperation of other professionals both inside and outside the adviser's business, they require more than a simple review. Advisers need to be sure colleagues engaged to run operations and contact clients in an emergency remain on board. If not, new resources need to be tapped.
The SEC is not scheduled to address its transition rule proposal until October — and everyone knows the agency moves at a snail's pace.
But that's no reason to put off until tomorrow what you can —and should — do today.
