If you counted up the total number of insurance plans you carry for your personal and business needs, you might have a dozen different policies covering everything from home to health. It’s not because you have to, but because you know it’s better to have a plan and not need it than to need a plan and not have it.
With this idea in mind, ask yourself: how’s your business continuity plan?
Virtually every advisor understands the importance of having a plan in place that ensures the continued operation of their firm if something unexpected should happen. Yet a recent paper from SEI reports that only 45 percent of advisors have a continuity plan on file. With such a small percentage of advisors having a plan, it’s no surprise that the SEC is taking action. They recently proposed a rule that would require RIAs to have written business continuity plans, and provide details on how they would transition client accounts should an unexpected event occur.
In the last couple of years alone, we’ve seen over a dozen situations in which advisors have been unable to continue managing their practice due to unexpected events such as a heart attack or car accident. And in every situation, having a plan in place to ensure the continued functionality of the business would have spared family, employees and clients a great deal of hardship and time.
Keep in mind that a continuity plan differs from a succession plan. A succession plan addresses your legacy, whereas a continuity plan is like an insurance policy. While both are critical components to an advisor’s overall strategic planning, it’s vital to first set up a business continuity plan to address immediate concerns following an unexpected event and secure the ability of your business to meet clients’ needs.
To get you started, here are six steps to help you create a business continuity plan:
1. Choose a continuity partner that can offer the right support. When looking for someone to step into your shoes in an emergency, you want a partner (or several partners) who can offer both investment advisory services and prudent business operations. Your business and needs will continue to evolve with time, so it’s also important to regularly review whether your partner is still the right fit.
2. Clearly specify how long the partner will service your clients and at what price. Remember you’re looking for backstop support in an emergency—you aren’t establishing a succession plan with fair market value for your business. Carefully consider the economics of any continuity plan: how much will your partner pay your estate and for how long?
3. If you have a team, educate team members on the plan. Although your team doesn’t need to know all the details of your continuity plan, they do need to understand what to do if you’re unable to run the practice: who do they call and what systems are in place?
4. Consider outsourcing. One way to distribute responsibility and risk in an emergency is to outsource key processes to a TAMP or other back office provider so you and your team can focus on more pressing matters if the unexpected happens. Outsourcing could also help streamline day-to-day operations, so it’s worth looking into.