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Business Continuity Planning for Financial Advisors


Helping your clients develop comprehensive financial plans often involves asking a lot of ‘what if’ questions. What if you get sick and need to retire earlier than expected? What if your spouse passes away unexpectedly? Applying that same approach to your firm can ensure that you’re prepared for situations that might threaten your business operations. That’s where developing a business continuity plan comes in.

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What Is a Business Continuity Plan?

A business continuity plan is a written plan detailing instructions or procedures for maintaining operations in the event of major disruption. Business continuity plans can cover a variety of scenarios, ranging from natural disasters to cyber-attacks.

Business continuity planning often goes hand in hand with business succession planning. With continuity planning, the focus is on making sure that:

  • Every contingency that could affect your business is accounted for
  • Employees know what to do to resume operations as quickly as possible
  • Client assets and information are safeguarded
  • Business records and documents are preserved
  • Lines of communication remain open

With succession planning, you’re strategically planning for your (or another key person’s) eventual exit from the business.

Are Financial Advisors Required to Have a Business Continuity Plan?

Whether advisors are required to have a business continuity plan depends on their registration status.

  • In 2016, the Securities and Exchange Commission (SEC) proposed a rule that would require registered investment advisors (RIAs) to develop and maintain business continuity plans. While the SEC encourages advisors to have a BCP in place, the rule was never formally adopted or finalized.
  • The North American Securities Administrators Association (NASAA) passed a model rule requiring state-registered advisors to maintain and enforce written business continuity and succession plans.
  • FINRA rule 4370 requires registered broker-dealers to maintain a written business continuity plan that covers emergencies and other scenarios that could cause significant business disruption.

FINRA rules allow flexibility in creating the plan but there are certain requirements advisors must meet. Plans must cover:

  • Data backup and recovery (hard copy and electronic)
  • Mission-critical systems
  • Financial and operational assessments
  • Alternate lines of communication between customers and the firm, and between the firm and employees
  • Alternate physical location of employees if they’re unable to access the business premises
  • Critical business constituent, bank and counterparty impact
  • Regulatory reporting
  • Communications with regulators
  • Customer access to funds and securities if the firm is unable to continue doing business

FINRA offers a helpful template that broker-dealers can use to create their plans.

Importance of a Business Continuity Plan for Financial Advisors

Business continuity planning is an insurance policy for advisors who want to be fully prepared for any contingency that might affect their operations. Having such a plan in place can help minimize revenue losses during periods of disruption while maintaining order within your organization.

Your clients may appreciate knowing that you have a continuity plan as well. Should a natural disaster occur, for instance, your clients may be concerned about how they’ll be able to contact you. Including clear instructions within your plan can be reassuring and strengthen their trust in you.

How to Write a Financial Advisor Business Continuity Plan

Financial advisors teaming up to write a business continuity plan.

What you include in your business continuity plan depends on which regulatory body you’re subject to. If you’re a state-registered advisor, you’d follow the NASAA’s model rule; broker-dealers would follow FINRA’s instructions. SEC-registered advisors can use the framework established under the proposed rule, which requires sections covering:

  • Maintenance of critical operations and systems
  • Data protection
  • Alternative physical locations and communication plans
  • Reviews of third-party service providers
  • Transition plan, should the business be forced to close

Conducting a risk assessment can help you determine which threats or contingencies you may need to plan for. For example, will your plan only cover natural disasters, or will you include instructions for other scenarios, such as a cyberattack or civil unrest?

As you draft your plan, consider the following questions:

  • What are the most essential functions of the business that must continue, even during periods of disruption?
  • Who are the key people in the business and who is equipped to assume their roles should the need arise?
  • What would need to happen and in what order to bring the business back online following a disruption, and how quickly would that need to happen?
  • Who needs to be contacted and in what order should a disruption occur?
  • How will communications be handled if phone calls and email are not an option?

It’s also important to consider time frames. Some emergencies may be short-lived, lasting just a few hours or a day at most while others may take days, weeks or even months to resolve. In the worst-case scenario, the disruption is indefinite which can result in the permanent closure of the business.

Using a layered approach that accounts for variations in length can help you create the most comprehensive plan possible. You can draft step-by-step instructions and procedures for each situation that’s included in your plan.

Here are a few additional tips for business continuity planning:

  • Maintain physical and electronic original copies in secure locations and distribute copies to each employee.
  • Review your plan annually for any information that may need to be updated or removed.
  • Consider running tests of your plan periodically to gauge employee response times and identify any problem areas that may need to be revisited.

Frequently Asked Questions (FAQs)    

Do Investment Advisors Need a BCP?

The SEC proposed a rule requiring registered advisors to maintain a written business continuity plan, though it was never formally adopted. State-registered advisers are required to have a BCP under NASAA model rules, while FINRA requires registered broker-dealers to create a continuity plan.

What’s the Difference Between a Business Continuity Plan vs. Succession Plan?

Business continuity plans outline procedures and policies for maintaining operations when there’s a significant disruption. Succession plans help you pass the business on to someone else when you’re ready to retire or make a strategic exit.

Why Should Advisors Write a Business Continuity Plan?

Creating a business continuity plan can enable your firm to navigate periods of disruption with as little negative impact as possible. Having a plan in place can be reassuring both to your employees and your clients who may have concerns about what would happen to their assets should a disaster or emergency occur.

Bottom Line

A financial advisor team reviewing a business continuity plan.

Business continuity plans can be an invaluable addition to your firm’s overall business plan. Expecting the best but planning for the worst can reduce the likelihood of your firm being completely derailed by an unforeseen event.

Tips for Growing Your Advisory Business

  • Automating business processes can help you operate more efficiently and reclaim valuable hours in your day. If you’re interested in automating some of your marketing activities, SmartAsset AMP can help. This intuitive platform is designed to help you generate more leads while leaving you free to focus on other aspects of running your business. Schedule a demo to learn more about how it works.
  • If you’re also interested in creating a succession plan for your firm, you may need to consider purchasing key person insurance. Key person coverage is designed to protect you against financial losses resulting from the loss of someone instrumental to your business. Comparing coverage options and rates can help you find the right policy.

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