In Part I we discussed the close relationship between the two elements, stating that succession planning could be considered a subset of business continuity planning, and how the TCF requirements added a dimension not normally included in the definition of business continuity, namely ensuring that clients or customers are serviced if the business is terminated. Sole Proprietors are exposed far more to risk when it comes to the future of their businesses than most other types of FSPs.
The real problem with regard to business continuity planning and succession planning arises with FSPs who operate as sole proprietors.
When a sole proprietor dies or becomes unable to carry on the business, the business dies, too. The goodwill gained over years of service to clients is lost as the licence of the FSP cannot be transferred or inherited. And, if a sole proprietor were to die suddenly, it follows that the requirements of S 20 of the General Code of Conduct are not capable of implementation – there is nobody who is able to consult with the clients and product suppliers and take reasonable steps to ensure that any outstanding business is completed promptly or transferred to another provider.
I believe that the real reason arrangements should be made “to ensure that their clients will be serviced if the business is terminated for any reason” is based on the fair treatment of clients (customers).
If a sole proprietor has been servicing clients for a number of years, he or she should ensure, for example, that arrangements have been made with another FSP to take over his or her clients. This should be discussed and agreed – in writing preferably – with clients, whatever the current circumstances of the sole proprietor. The arrangement should include the consent of clients for personal information to be provided to the chosen alternative FSP in order to comply with Section 3(3) of the General Code of Conduct. This section provides that an FSP may not disclose any confidential information acquired or obtained from a client unless the written consent of the client was obtained beforehand.
A definite responsibility of the sole proprietor is to establish and maintain detailed client files so that, if the client has to appoint a new broker, all information relating to that client’s financial affairs that are required for the services that were rendered, are available in the client file. This should ideally include all relevant client history.
It is for this reason that sole proprietors have been and continue to be encouraged to register a company, apply for the company to be authorised as an FSP and to then transfer their business to the company. It would be advisable, when taking this step, to also include some form of succession planning. This planning would entail a process for identifying and developing internal people with the potential to fill Key Individual positions in the company.
For the sole proprietor, this means a great deal of change – and people do not like change.
Consolation may be sought in the words of Peter Drucker (Management Challenges for the 21st Century) that seem particularly appropriate right now: “Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm.”
A stitch in time saves nine and prevention is better than cure. This applies even more where the sole proprietor leaves behind dependents, yet is not there to effect the cure.