Quick Answer
Investment advisers must maintain a written business continuity plan covering disaster recovery, succession, client notification, key personnel, and regulatory communication. The NASAA model rule sets no fixed review cadence (unlike the annual FINRA broker-dealer requirement); the plan is reviewed and updated as circumstances change. Succession planning is especially critical for sole practitioners, who have no automatic backup.
What Elements Must a BCP Include?
| Element | Details |
|---|---|
| Disaster recovery | Procedures for data backup, systems recovery, and alternative office arrangements |
| Succession planning | Plan for continuity of advisory services if the adviser becomes unable to serve (death, incapacity, retirement) |
| Client notification | Procedures for notifying clients of any disruption to advisory services |
| Key personnel | Identification of critical staff and their backup assignments |
| Regulatory communication | Plan for communicating with regulators during a disruption |
How Often Must the Plan Be Reviewed?
- The NASAA model rule sets no fixed review cadence: the adviser reviews, tests, and updates the BCP based on its facts and circumstances
- The plan must be updated after significant business changes (key personnel, vendors, operations, locations)
- Note: the at least annually review requirement comes from the broker-dealer business-continuity rule, which does not govern state investment advisers
Why Is Succession Planning Critical for Sole Practitioners?
Particularly important for sole practitioners who have no automatic succession.
Think of it this way: A sole-practitioner investment adviser (IA) who becomes incapacitated with no succession plan leaves clients unable to access their accounts or receive advice. The adviser's fiduciary duty extends to protecting clients even after the adviser can no longer serve them.
Exam Tip: Gotchas
- A sole-practitioner IA who becomes incapacitated with no succession plan leaves clients locked out. Regulators specifically test awareness that succession planning is a regulatory requirement, not just a best practice.
What Should You Check on Exam Day?
- Investment advisers must maintain a written business continuity plan (BCP)
- Required elements: disaster recovery, succession planning, client notification, key personnel identification, and regulatory communication
- The NASAA model rule sets no fixed review cadence; the adviser reviews, tests, and updates based on facts and circumstances
- The plan must be updated after significant business changes (key personnel, vendors, operations, locations)
- The "at least annually" review requirement is a FINRA broker-dealer rule, not a state IA requirement
- Succession planning is especially critical for sole practitioners, who have no automatic succession
- A sole practitioner's fiduciary duty extends to protecting clients even after the adviser can no longer serve them