Moonstone: Succession Planning versus business continuation

Trying to stay compliant is almost like the character in the song “Keep the customer satisfied” from that classic Simon and Garfunkel album Bridge over troubled waters:

”I’m one step ahead of the shoeshine/two steps away from the county line/just trying to keep my customer satisfied...

In our article on risk management planning last week we referred to the FSB’s comment about “…the lack of succession and contingency planning in broker practices they visited.” Clyde L. responded to this as follows:

“With reference to the FSB’s insistence that FSPs provide a succession and contingency plan, I wish to state that I have not made such provision. I have a lawyer, accountant and doctor and should any of them fall off the perch, it is my responsibility to find another to replace them. In my opinion the FSB in this respect is pushing the envelope too far.

I have the following clause included in my disclosure document which I believe covers me.

Should anyone transact any business with me and in the event of my future death, such person will have to make alternative arrangements as to who will continue to service them regarding their insurance and investments. I am reluctant to make any recommendations as to who should take over my clients, as I do not wish to be blamed posthumously for referring them to someone who has failed to render appropriate service.

With the litigious society we now live in, a client could sue one’s estate for incorrect advice by having referred them to another FSP. It could be construed as inappropriate advice and leaves the FSP’s estate vulnerable.

I would like to hear some comments from other FSPs.”

Before we respond to this, please allow me to rectify an error which I made in the article. The FSB’s concern lies with two possible future scenarios: the first is succession planning and the second with business continuation, of which the contingency aspect is but one part that one should make provision for.

Succession planning makes provision for when you retire or die; it is planned for and proactive action on your side for the inevitable.

Business continuation deals with much more than just the above and includes both short- and long-term situations such as being off sick, on leave or becoming disabled. This applies particularly in the case of a one-person business where there is no administrative back-up. Let us look at an example to illustrate the point.

You are off to the deep Karoo to go hunting, fishing at Hentiesbaai or overseas. Your client’s car is stolen, or he dies, and his relatives need to get hold of you urgently but you are not available.

I have little doubt that most of you do make provision for such eventualities; in fact, I read it in your “out of office” responses to our newsletters. The real issue arises when your non-availability is of a more permanent nature such as death or disablement, eventualities which we can seldom foresee.

An often quoted passage in the General Code of Conduct reads:

“General duty of provider

2. A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”

This includes making provision for when you are unable to look after the interests of your client, whatever the reason.

I differ from Clyde’s perspective that a client can sue his estate for having referred a replacing FSP:

• Once the other FSP renders advice or intermediary services, that FSP is liable and accountable for such services
• Very few right-minded FSPs would recommend the wrong person to his or her clients, as their dependants would have a financial interest in the continued servicing of their clients.

An article published in the July 2008 edition of the FSB FAIS newsletter sets out the regulator’s views on the above – click here to download a copy.

Next week we’ll take a look at some of the options available to address this issue.