State-Registered Advisors Prep for New Succession Planning Rules

State-registered advisors should act now to prepare for upcoming new rules by the North American Securities Administrators Association requiring them to have business continuity and succession plans in place.

The comment period on NASAA’s proposed model rules expires Oct. 1.

Patty Struck, chairwoman of the securities division for NASAA, told attendees on a Tuesday webinar held by Pinnacle Advisor Solutions called “What Could New Succession Plan Rules Mean for You?” that the new rules will not be “prescriptive, but broad,” and will require investment advisors to create and implement written procedures to address business continuity and succession planning under the Uniform Securities Act of 1956 and under the Uniform Securities Act of 2002.

Struck said that NASAA’s proposed rules, which were released “after a year of development,” address the “unique challenges” that the aging of the advisor work force as well as investors present. Advisors, she said, can become incapacitated for various reasons, “but the advisor still has fiduciary duties that survive their incapacities.”

Some states already require that advisors have business continuity and succession plans, Struck said, adding that the new NASAA rules will create “consistency” among the states.

Once the comment period expires, Struck said that NASAA will take the “final product,” which may or may not include amendments, and consider adopting a final rule in the spring. State legislatures or state securities regulators will then look to adopting the model rule “probably through calendar year 2015.”

The proposal includes a model framework that would require that advisors create and implement a business continuity/succession plan that covers a variety of topics, including the protection, backup and recovery of books and records. Advisors would also have to establish 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). In addition, advisors would have to set up an alternate office location in the event of a loss of a principal place of business as well as assign duties to qualified persons in the event of death or unavailability of key personnel.

Struck, along with Chris Winn, founder and CEO of AdvisorAssist, noted on the webinar the importance of succession plans for small advisory firms and sole proprietors.

Winn told advisors to “get started” on such plans now, and to first “inventory the risks inherent in their specific practice.” For instance, “if it’s a solo firm, is there spouse or child, someone that can step in in some way to assist and facilitate everything” should something happen to the advisor?

Advisors, he said, “do have a fiduciary duty to ensure our clients are taken care of,” he said, adding that in some states an advisor’s practice would cease to exist if the advisor died.