SEC steps in to assure IA business continuity
RED FLAG REMINDER
FINANCIAL PROFESSIONALS LIVE IN perilous
times, especially those who advise clients about
investments or who actually manage client money.
The risks of cyberattacks, ransomware, identity theft,
natural disasters, and even personal health crises are a
frightening reality. Although most advisors know this,
a recent SEI Advisor Network and FP Transitions white
paper found that only 45 percent of financial professionals have a written business continuity plan in place
to assure their business stays open during a crisis.
Operating without a plan is even more dangerous
when you consider the E&O insurance risks involved.
When a client with a pressing problem can’t reach his
or her advisor or an advisor can’t execute an important
request, the person will rightfully assume the advisor
dropped the ball. Complaints and lawsuits may soon
For this reason, the National Ethics Association
urges all financial professionals, not just investment
advisors, to revisit their existing business continuity
plans or create one, if necessary. Since regulators have
begun requiring this of licensees, now’s the perfect
time to check this task off your to-do list.
The most recent impetus has come from the Security
Exchange Commission, which proposed a new rule that
would require RIAs to adopt and implement written
business continuity and transition plans. The proposed
rule is designed to ensure that investment advisors have
plans in place to address operational and other risks related to a significant disruption in the adviser’s operations
in order to minimize client and investor harm.
The proposed rule would require an advisor’s plan to be
based upon the specific risks associated with the advisor’s
operations. It would have to include policies and procedures addressing the following elements:
• Maintenance of systems and protection of data
• Pre-arranged alternative physical locations
• Communication plans
• Review of third-party service providers
• Plan of transition in the event the advisor is winding
down or is unable to continue rendering service
The plan would have to cover all of the elements needed
to prepare for service disruptions and to minimize them
should they occur. But the SEC would permit advisors to
tailor the detail of their plans based upon the complexity
of their firms and the unique risks they face.
What’s more, the proposed rule would require advisors
to review the adequacy and effectiveness of their plans at
least annually and to retain certain related records.
Fortunately, many FMOs, insurers, broker-dealers, and
regulatory consulting firms have business continuity plan
templates available for their advisors. The National Ethics
Association and its E&O insurance affiliate, EOforLess,
recommends advisors seek advice on this front and take
quick action before an unforeseen catastrophe sparks an
E&O insurance nightmare in their business.
BY NATIONAL ETHICS ASSOCIATION