Just this past week I was talking with handful of advisors in New Jersey who informed me that the New Jersey Bureau of Securities has officially adopted the NASAA model rule requiring RIAs to have a formal continuity plan in place in the event of death or disability of a key individual, principal or owner.
In April, 2015 the North American Securities Administrators Association (NASAA) issued its model rules for continuity and succession planning. The new rule asks state regulated RIAs to implement continuity and succession plans to protect clients from “key-man” risk – the risk that key personnel at small wealth management firms might suffer death or disability and leave clients unexpectedly fending for themselves.
NASAA generally expects states to promulgate their own specific rules bases on the model rule within 12-18 months of the passing of the model rule. New Jersey is the first state that I have come across in my conversations with advisors that has adopted the model rule, and adopt it they did (almost verbatim):
Business continuity plans, which generally provide for, but are not limited to, the following:
2) Establishing alternate means of communication with customers, employees, and regulators;
3) Office relocation, in the event of a loss of principal place of business; and
4) A designation of duties to responsible person(s) in the event of the death or disability of a key individual, principal, owner, or other such personnel.
Now a topic that was once a “best practice” or “nice to have” is thrust to the foreground and has left many solo-practitioners and small ensembles in New Jersey scrambling for ideas on how they are going to satisfy this requirement. The good news for those advisors without a continuity plan in place is they can simply formalize a wind down of their practice. Unfortunately, this doesn’t really take care of the clients or realize any kind of value for their practice, and for these reasons is not a very attractive option.
Most advisors have no continuity or succession plan in place. Those who do often have a “handshake” agreement with a local firm in their study group. These types of agreements typically lack the details and/or the enforceability that may be required by the new rules.
Even when advisors put a formal agreement in place with another firm, they often overlook a very practical consideration: when the time comes to absorb your firm, does the acquiring firm have the capacity to handle all the new clients at once? In many cases, both firms in the agreement are solo practitioners struggling to manage their existing client load and do not have the systems or the resources to absorb the new clients without sacrificing service to their own clients or to both sets of clients.
Pinnacle offers its own unique contingency solution called PRISM (Pinnacle’s Revocable Institutional Succession Model). It is a simple, low-risk continuity planning solution is designed to protect you clients and your family in the event of death or disability. You are able to continue to run your practice as you always have comfortable knowing your clients will receive the same high level of service as you provided from industry leading wealth management firm Pinnacle Advisory Group and that you and your family will receive market value for your firm. We offer a webinar each month
New Jersey is just the first state I have come across that has turned this best practice into a regulatory requirement. I’m sure the rest of the states are in various stages of adopting the NASAA model rule.