Could the SEC Require You to Have a Succession Plan?

Last June, the Securities and Exchange Commission announced they were considering enacting a rule that all registered financial advisors would need to have a solid succession plan in place. The proposed rule would mandate succession planning for financial advisors, something that’s largely in place for RIAs at larger corporations but woefully underutilized for independent financial advisors running their own firms. The rule wouldn’t just be for financial advisors who are retiring, either; it would be required for any financial advisor so that any major disruption to their business would be properly handled and their client’s portfolios would have continued management.

What the SEC Is Proposing

Business Continuity Planning

The SEC notes in their proposal that “Business continuity planning is a critical activity that supports resiliency and one that financial services firms, including investment advisors, generally should engage in to address the inherent risks they face in serving their clients’ needs.” Clients are depending on their financial advisor’s help in reaching their financial goals for retirement, buying a house, paying for a college education, or other goals. If something is to happen to the financial advisor or their business, the SEC wants businesses to have plans in place such as where they would meet with clients in an emergency, how they are backing up their records, and who would take over their business if something happened to the RIA.

Transition Planning

The SEC’s concern isn’t limited to a business’s ability to carry on in a crisis situation, though. It’s also worried about the number of RIAs leaving the industry and how quickly some of them are doing it. They say in their proposal, “Operational risks are not limited to affecting the day-to-day operations of an advisor, but can lead to a financial services firm having to cease or wind-down operations while also considering how to safeguard clients or investor assets. The 2008 financial crisis demonstrated that providers of financial services are at risk of having to exit the market unexpectedly and having to do so quickly.” Their concern is not only for retiring advisors, but those who are changing careers, facing an illness, or even those who pass away suddenly. What happens to their clients left behind?

What You Can Do Now

The SEC stopped taking public comments on the proposed rule in early September, but it’s already having an impact. Many RIAs are looking for succession planning help before the SEC gets involved. That’s a good idea, too; the longer you wait, the more likely the SEC is going to step in and make this sort of planning a requirement for your business. That could make it much more expensive and stressful to make these plans. Starting on it now can help you spread out the cost of succession planning and do it on your own terms and in your own timing. If you’d like to get started with succession planning for financial advisors, get in touch with advisorRETIRE™ today. We can help you start getting your plans in place right away.