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IA Compliance:

Business Continuity & Succession Planning: Where to Start

This is one of a series of compliance-related articles prepared for state-registered investment advisers by NASAA’s Investment Adviser Resources and Publications Project Group.

An investment adviser’s fiduciary duty includes an obligation to its clients to have policies and procedures in place that minimize risk and ensure your clients’ access to their assets. A business continuity and succession plan (BCS Plan) is a plan for a situation where a key person is unexpectedly unable to perform his or her assigned functions for the investment adviser.

The specifics of a BCS Plan will vary depending on the firm’s business model, but should reduce the risk of being unable to serve clients following an unplanned business interruption or emergency.

When developing your BCS Plan, investment advisers should consider the following steps:

Step 1. Identify the Risk
The first step in developing a BCS Plan is to identify the risks that could cause a service interruption. Such risks may include:

  • A service provider interruption (such as a power outage);
  • A natural disaster (such as storms, earthquakes or flooding);
  • Terrorist acts;
  • Equipment failures (such as a cybersecurity event); or
  • The death or disability of a key employee (including you).

Step 2. Parties Involved in the Plan
When designing a BCS Plan, consider who to designate to help implement the plan. Designated individuals should be trustworthy, responsible, and capable of carrying out their assigned duties. For those who will be taking over advisory functions, make sure they are licensed.

Advance written consent from clients will be required if the plan contemplates the assignment to advisory accounts to a third party permanently or temporarily. Additionally, securing written contractual assurances from other parties involved in implementing the plan is an essential component of the overall plan and necessary to document their responsibilities.

Step 3. Put it in Writing
A BCS Plan should be in writing and stored in an accessible place or places. Copies of the plan should be maintained in a way that ensures that all office locations have access to the information.

Among other considerations, your BCS Plan should address:

  • The back-up of the adviser’s data and books and records;
  • Alternate means of communication with customers, employees, and regulators;
  • Possible office relocation;
  • How clients will be informed of the implementation of the plan; and
  • How clients will have access to their securities or funds.

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