RIA Compliance Blog
On April 13, 2015, the North American Securities Administrators Association (“NASAA”) adopted a model rule concerning business continuity and succession planning for investment advisers. The model rule is intended as guidance for state-registered investment advisers to determine how to develop succession planning policies and procedures. Investment advisers without business continuity and succession plans face serious risks if the adviser is temporarily or permanently unable to service its clients. Included with the model rule are scenarios to help illustrate when business continuity plans are important for an investment advisory firm and many questions to help determine how to craft the plan properly.
Many different types of disasters can strike an investment advisers’ business. From naturally occurring disasters such as hurricanes and snow storms to unnatural disasters like terrorist attacks or a sudden death, it is important to have thought about and created a succession plan to ensure that your clients’ interests are not harmed. A business continuity and succession plan allows the adviser to safeguard critical business functions so that your firm can continue as long as needed when a disaster strikes.
The model rule provides that investment adviser succession plans should cover at a minimum:
1. The protection, backup, and recovery of books and records;
2. Alternate means of communications with customers, key personnel, employees, vendors, service providers (including third-party custodians), and regulators, including, but not limited to, providing notice of a significant business interruption or the death or unavailability of key personnel or other disruptions or cessation of business activities;
3. Office relocation in the event of temporary or permanent loss of a principal place of business;
4. Assignment of duties to qualified responsible persons in the event of the death or unavailability of key personnel; and
5. Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.
One of the more important aspects of a business continuity and succession plan is a designated person outside of key personnel that is intimately familiar with the investment adviser’s business. The designated person should have knowledge of client services and products offered to clients. Investment advisers with only one investment adviser representative usually designate a spouse, attorney, accountant, or other adviser to implement the firm’s succession plan. Without a designated person that understands the investment adviser’s business, an investment adviser might not be able to service their clients in the event of a disaster.
Given the vast differences in scale and scope of business between investment advisers, each adviser’s plan needs to be tailored to the specific practices of the Investment Adviser. A key component of tailoring the business continuity plan to the investment adviser’s practice is to continually test and monitor the plan to ensure that it is effective. If you have questions about your firm’s business continuity plan, we can help.
Parker MacIntyre provides legal and compliance services to investment advisers, broker dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our website for more information.