SEC proposed advisor transition plans

SEC proposed advisor transition plans

On June 28, 2016, the Securities and Exchange Commission (SEC) released a proposed rule that would require all registered investment advisors (RIA’s) to create and implement business continuity plans (BCP) and transition plans. The BCP requirements are similar to other requirements from both the SEC itself and other bodies such as Financial Industry Regulatory Authority (FINRA). The term “transition plans” used by the SEC means written documents to manage the shut down or transfer of business to other advisors or service providers in the event an advisor needs to exit the business. This post focuses on the transition plan requirements.

Transition plan requirements summarized

Most of the details with regards to transition plans are contained on pages 41 and 42 of the SEC document. Requirements include:

  1. Policies and procedures (P&P) intended to safeguard, transfer, and/or distribute client assets during transition
  2. P&P facilitating prompt generation of any client-specific information needed to transfer the client
  3. Corporate governance information
  4. Identify any material financial resources available to the advisor
  5. Assessment of applicable laws and regulation that may impact any client transitions

Transition plan requirements – Over the top?

The SEC’s requirement for transition plans is a significant one. To date, regulators have generally been reluctant to mandate that organizations prove they are ready to shut down in an orderly manner. The most notable exception to this rule is the mandate within Dodd-Frank that large banks create resolution plans commonly known as “Living Wills.”  The impetus for the banking Living Will requirement was the financial meltdown in 2008 and 2009 and the fear that certain institutions had become “too big to fail” and took on excessive risk thinking the government would rescue them.

Most businesses obviously focus on growth and sustainability initiatives, and only plan for exiting the business when there is a drastic change in market conditions such as new competitors, products, etc., which make the status quo untenable. Planning for demise, under both normal and stressed situations, will be challenging for many organizations. Just as creating a personal will can be a difficult process, even with an entire industry established to assist individuals, creating an equivalent plan for a business, with multiple parties involved, will be significantly more challenging

The target audiences and drivers are different for the Dodd-Frank living will requirement and the SEC transition plan requirements:


Dodd Frank living will

SEC transition plan

Targeted at

Largest banks and financial institutions in the country – primarily those over $50 billion in assets.

All registered investment advisors. While SEC expects plans to vary by advisor size and complexity, there is no dollar threshold.


Financial meltdown and concern that certain entities’ size present a risk in itself.

SEC feels that transition plans are a component of advisors’ fiduciary duties and general customer service commitments.

For more information on regulatory compliance, or to learn how Baker Tilly's financial services specialists can help, contact our team.

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