Another year has come and gone. And with each New Year comes the annual decision about new resolutions. Not this year. It looks as though the regulators will make the decision for you. Both the SEC and NASAA are poised to issue new rules in 2015 that will require RIAs to put a continuity/succession plan in place.
When? The North American Securities Administration Association (NASAA) anticipates issuing a final rule in April 2015. The request for comment period expired September 30, 2014 and the agency is tidying up the details. In an early December speech, SEC Chairwoman Mary Jo White indicated her agency will follow suit. The new rule is on the SEC calendar for proposal in October, 2015.
Why? Both regulatory agencies have been working with RIAs on business interruption planning in the wake of so many natural disasters over the last decade. The glaring issue that remains unaddressed for solo practitioners and small ensembles is “key man” risk. What happens if an advisor dies or becomes incapacitated? What will happen to the firm? Who will care for clients?
While the industry likes to consider this a “hit by the bus” issue, the reality is that “life happens”. A quick look at disability actuarial data tells us that 10% of people over 55 will experience long term disability lasting 80-85 months and the most common cause at ~90% is illness.
How? We expect the details about “How” will be revealed with the new rules. Our current understanding is that NASAA plans to issue its final rule in the Spring 2015 and then the states will roll-out the new rule at varying rates during 2015 based on their own regulatory processes. This should provide advisors with ample time to explore options and allow a plan to be put in place before their 2016 audits. Stay tuned!
What? There are several solutions currently available to RIAs, each with pros and cons.
- Large RIAs and private-equity-backed consolidators hope advisors will chose outright sale.
- Many advisors will attempt to come to a merger or contingent agreement with neighboring firms and try to tackle all the associated issues of price, culture, operations and control that can make the process so frustrating and potentially fruitless.
- Others will try to implement an internal succession which is often the best solution for clients, but may not always be an ideal solution for the business.
- Still others will enter contingent agreements with a handful of institutional firms like Pinnacle Advisory Group that have been offering simple, effective and revocable continuity/succession solutions to independent advisors for several years.