A sad but true observation is the degree to which the implementation of some regulation has actually served to run counter to the intended effect of that regulation.
For example, we all know we need business continuity plans. These are often referred to as disaster recovery plans. They are not only good sense, but are a regulatory requirement.
And that is where it starts to go wrong. As with 99 per cent of regulation, the mindset of the regulator – the prism through which they see the world – is that we all work in large companies.
So the key headings in business continuity plans are about loss of premises – which is fair enough – and IT dangers.
But if small businesses have proper back-up, outsource most of their functions and use only industry-proven software, these risks are fairly low. So our business would be disrupted but not killed off by a fire at our offices, for example.
Another regulatory requirement for firms with only one CF30-qualified adviser, is a locum agreement. This sets out who will give advice to clients on the death or disability of the principal. This was fine in the 1990s when firms relied on new sales to survive. Indeed, most locum agreements assume that the locum will do exactly that. Sell products and earn commission. But that is not the world we live in any more.
The process should, in fact, be just like financial planning, with advisers asking themselves the following key questions:
- If you were not here, who would clients be dealing with?
- What do you want to happen to the firm if you were long-term disabled or died?
- Who would you want to look after your clients?
In most cases, firms have a pretty good idea who they would want to look after their clients if they were no longer around.
They are looking for someone who can stabilise the firm, make good commercial calls and support the team in the short term and, if required, go on to sell the firm as a going concern in the medium term.
In short, firms need a business continuity plan that addresses the key risks to a ‘one man band’. If they die or fall ill, how does the business continue? And by continue, this means asking yourself: “How does the business continue to pay my family the £5,000 per month or more that is required in order that my family – and perhaps me – can live without additional stress?”
So all small firms need to sit down and discuss what they want to happen on the disability or death of one of the advisers. How do the clients get told? Who looks after them? Does the dead adviser’s estate get any ongoing payment? Under what circumstances?
Then write all this down and get agreements drawn up to be able to implement it. For firms with only one or two advisers, it is unlikely this can be implemented only internally. External support will probably be required. What does this look like?
It could be your accountant, together with your compliance support and a peer from a local firm. Or you may need a temporary managing director to pull it all together.
No two solutions will look alike. But they will all seek to address key risks and set out a protocol for addressing the unforeseen outcomes of tragic events.
Just like financial planning…
Phil Billingham is a director of the Phil Billingham Partnership