Among their many other compliance obligations, Registered Investment Advisers (“RIAs”) owe a fiduciary duty to implement business continuity and disaster recovery plans (“BCPs”). Without a BCP, an RIA’s clients may be harmed if a sudden or unexpected event occurs that disrupts the firm’s operation.
A BCP should spell out what steps will be taken when an event occurs that poses a threat to the firm and clients’ well-being. It should detail the RIA’s game plan if these events curtail its operations or bring the advisory business to a halt. The BCP should be updated if there are new risks or changes in how the firm will respond to a disaster or catastrophic event. RIAs should consider reviewing their BCPs when they conduct annual reviews of their policies and procedures.
A BCP should identify which persons are responsible for executing the firm’s plan. Members of the firm should be fully aware of their responsibilities pursuant to the BCP. A BCP is useless if it is not communicated to advisory personnel. Each and every revision should be shared with employees.
Communication is a key element of every BCP. An RIA’s BCP should provide for an alternative means of communicating with clients, key personnel, vendors, service providers, and regulators. No matter what event occurs, RIAs should have ready access to the latest contact information for clients, employees, service providers, vendors, and regulators.
A comprehensive BCP should address a wide range of contingencies, such as specifying a different place for employees to meet and conduct business in the event of a disaster. That alternative place of business should be far enough away from the main office, so it won’t be impacted if a natural disaster ravages the area.
Protecting important data is an important aspect of a well-formulated BCP. RIAs should test their ability to store, maintain, and recover backup files. Firms should document and retain the results of these tests.
In addition, RIAs should evaluate the BCPs of third-party service providers, such as broker-dealers. As part of their due diligence process, RIAs should review what steps they have taken to address disasters and other contingencies.
A succession plan can be incorporated in an RIA’s BCP. Succession planning facilitates a smooth transition of ownership if a key person passes away, leaves the firm, or becomes disabled. Succession planning, especially at smaller firms, ensures that the RIA will still be viable and responsive to clients if a terrible event occurs.
Succession planning can bring many benefits beyond compliance. RIAs can ensure that there is an orderly transition of ownership to a new person or team. A well-devised plan can minimize the potential tax and legal ramifications that may result from the occurrence.
About RIA Compliance Group: RIA Compliance Group is an investment adviser compliance consulting firm based in Boca Raton, Florida. The firm’s mission is to provide affordable, timely, practical, and cost-effective compliance advice. We help investment advisers to comply with the myriad of state and SEC regulations and compliance obligations facing their firms. RIA Compliance Group takes pride in giving personal service and real world compliance advice, not theoretical concepts and legalese. The firm interacts on a daily basis with SEC and state securities regulators.
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