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NASAA Adopts Model Succession Plan Rules

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The North American Securities Administrators Association recently adopted its model rule for business and succession plans, which, while not mandatory, provides a roadmap for those states that choose to regulate succession planning for advisors.

NASAA’s model rule became effective on April 13, and can now be adopted by individual states well as the Canadian provinces, Mexico, the District of Columbia and Puerto Rico. The effective date will depend on the adopting state or region.

“At the time that the individual state adopts the rule, it will be available to administer as a requirement of books and records or fiduciary practice,” Patty Struck, Wisconsin securities administrator, told ThinkAdvisor on Tuesday.

The Securities and Exchange Commission’s Division of Investment Management is also developing succession plan rules for RIAs that would be mandatory.

The NASAA rules are designed to help an investment advisor “create a plan,” NASAA states, with both the model rule and guidance written pursuant to Section 203 of the Uniform Securities Act of 1956 and Section 411 of the Uniform Securities Act of 2002.

Such plans should provide for at least the following: The protection, backup and recovery of books and records; 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; office relocation in the event of temporary or permanent loss of a principal place of business; assignment of duties to qualified responsible persons in the event of the death or unavailability of key personnel; and otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.

While Struck says that “it’s dangerous to predict” which states will adopt the rules, she sees a “good likelihood” that most states will concur, given how long NASAA has been working on the rules and the number of NASAA members that “commented on the rule and guidance and suggested changes,” which were adopted.

SEC Chairwoman Mary Jo White said in early February that the agency’s Division of Investment Management was developing recommendations for a rule to address the “increasingly complex portfolio composition and operations of today’s asset management industry,” which includes requiring advisors to have succession plans.

The SEC would require advisors to create transition plans to prepare for a major disruption in their business that could disable them from serving their clients.

As to whether the SEC succession planning rules would overlap or potentially conflict with NASAA ones, Struck noted that the rules wouldn’t be “entirely separate,” adding that she hoped to see “some consistency with the NASAA standards.” NASAA’s rules, she added, are “quite flexible depending on the size of the advisor” and their assets under management.   

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