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Advisors Need Continuity Plans, Now More Than Ever: Echelon

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The ongoing coronavirus crisis has highlighted why, now more than ever, advisors should have a true, comprehensive continuity plan that adequately prepares their firms, clients and families for the unexpected, according to Echelon Partners.

“This COVID pandemic has been a real wake-up call for many of us and it provides that fresh opportunity and perhaps the catalyst to help you put a proper continuity plan in place for your business, your clients, your employees and your estate,” Carolyn Armitage, a managing director at the firm, said during the early-April webcast “Continuity Planning Solutions for Wealth Managers.”

Advisory firm owners “may not be thinking about continuity planning expressly right now” because of everything that is going on during these chaotic times, conceded Mark Bruno, another managing director at Echelon. However, the coronavirus crisis has made it abundantly clear “what some of the gaps are … in existing continuity plans.”

Three Plan Types

Many advisors are overconfident about the plans they have in place, Armitage and Bruno said. Meanwhile, “one of the major stumbling blocks for advisors putting in place these plans is the confusion over them,” Armitage noted, adding: “Many folks think because they have a business continuity plan in place, they’re all set.”

However, many of them are not set because “you need all three” types of plans to deal with a disruption or transition, she said.

Those three types of plans include: Traditional business continuity planning to safeguard your clients and their accounts, and make sure they can access their funds in the event of a physical disaster or a cybersecurity breach; key executive continuity planning to determine what happens if you become disabled, sick, get hit by a bus or even die, but also if you lose your license or RIA certification, or go to jail; and succession planning “to let them know if something happens to [you, the firm has] a plan in place” for somebody “to take over for you,” Armitage said.

“When we see organizations that have a defined and documented continuity plan, that’s usually a telltale sign of a very well-run business,” Armitage explained. Also, “when it comes time to sell that business, the buyers really appreciate” it too.

Where to Start

It’s important to make a detailed list of all the key functions that you perform and what you have access to, she said: “The big takeaway here for advisors is to get it out of just your mind or your memory and to document it in an accessible place — only with certain key individuals having access to that, obviously, because you don’t want to give away your secret sauce” or any of your passwords and other confidential information. Plans can always be updated — and should be, at least once a year, Armitage adds.

Next Steps

Advisors also should develop a business continuity manual for their continuity partners to have, Armitage said, adding it should be in electronic format, so it’s accessible and searchable by keyword from anywhere and easier to regularly update.

“Finding the right continuity partner is obviously one of the most difficult components and it’s also the most important,” she explained. Therefore, it “requires a lot of thought and some outside perspective can be helpful.”

While it might be easy to figure out if you and another advisor share the same business and investment philosophies, it is typically more “challenging” to figure out the right match in other ways, such as whether somebody is a good person that you can trust, Armitage said. And having someone you can trust is “one of the big showstoppers for most advisors in selecting somebody as their continuity partner.”

Laws and Rules

In general, Securities and Exchange Commission Rule 206(4)-7 and an RIA’s fiduciary obligation to clients point to the need for advisors to maintain a business continuity plan, according to Max Schatzow, an attorney with the law firm Stark & Stark. The Financial Industry Regulatory Authority, meanwhile, has enacted rules to mandate business continuity planning, he noted.

It might be a good idea to use the coronavirus crisis as a learning experience, Schatzow explained: “If you decide your policies and procedures [and] your continuity plan didn’t cut it for this event, it’s definitely time to revisit them [and] revise them because there’s always time to improve your policies and procedures.”

Jeff Berman is a staff reporter at ThinkAdvisor. Reach him at [email protected].