Advisors aren’t required to have business continuity or succession plans, yet their dealers are — leading to material questions around an advisor’s ethical duty to plan ahead for their clients’ sake.
While too few financial advisors have created succession plans, there’s “lots of guidance specifically from the industry on why we should be addressing [this],” said Rod Burylo, investment fund manager consultant with Calgary-based exempt market dealer Axcess Capital Advisors Inc. He also has served in various chief compliance officer roles throughout his career.
Burylo said that self-regulatory organizations and securities regulators require dealers to have business continuity plans so clients can be served without disruption, even during emergencies. That requirement is “a good message to us [advisors]; if they require it of the dealership, it may be something you should be requiring of yourself,” he suggested.
He said dissecting the language used in FP Canada’s practice standards can also lead to a “very strong” argument in favour of having both continuity and succession plans to protect clients.
Burylo led a Sept. 23 session on how ethics relates to both business continuity and succession planning for advisors for the Institute of Advanced Financial Planners’ (IAFP) 2021 virtual symposium. Basic continuity planning is largely understood as emergency planning, he said, while succession planning involves advisors who are retiring and transitioning their books.
Advisors without plans should recognize the negative optics and potential risks of not planning ahead.
“Clients would find it ironic that professionals that are in the business of helping others prepare for a retirement … or a health-related matter that could arise, that so many of us don’t in fact [plan] for ourselves,” Burylo said.
Advisors who do embark on planning must be sure to do so compliantly — especially when it comes to organizing, handling and protecting client data.
Most advisors know client information cannot be shared with others unless clients provide consent. “Yet, what I see sometimes is when an advisor starts to think about things like a succession plan, they start to think about who would buy their book of business and have conversations about that book,” and the value of the book is often disclosed, Burylo said.
Since advisors may not want to prematurely warn clients about their departure plans, he added, “there are times when advisors might start to share client information” without obtaining consent.
“From a compliance perspective, should there be a process in place that indicates to a client that at some point in the relationship, some of the information about them might be shared for a succession or business continuity plan?” Burylo asked.
He also stressed the importance of assessing potential book buyers for knowledge, certifications, long-term client-service capacity, future goals and overall character.
“It’s hard to measure character,” he said, but a person’s integrity and ability to follow through for your clients matters.
While this may all seem daunting, simply beginning the planning process will be useful for maintaining clients’ confidence.