What To Do When

Over the past couple weeks, indeed over the past two years, several independent broker dealers have closed their doors.  This has left hundreds of advisors, and their tens of thousands of clients, without brokerage support.  This article from Investment News provides four steps for being prepared for the unthinkable:

1. Don't ignore signs of trouble. 
2. Look into your firm's potential regulatory and/or arbitration problems in relation to its financial strength
3. Look into your B-D's errors-and-omissions-insurance coverage. 
4. Start formulating a backup plan.

The biggest point is that a backup plan needs to be in place before any signs of trouble emerge.  And that backup plan should consider some radical changes: resigning FINRA licenses and opening an independent RIA; assigning clients to a trusted colleague at another firm for a while; executing your succession plan.

I do some work with a group of advisors.  They came together as a result of a life insurance company getting out of the independent BD business.  They were able to affiliate with another BD and get all of the other infrastructure in place to serve their clients within four weeks.  As long as I have been working with them, they have had a contingency plan.  The consortium is constantly entertaining ideas for new affiliations, and has twice organized a formal investigation into organizational options.  Now, the group estimates that they able to serve their clients after a weekend, and will have a full transition in place within five business days.  This is not only good business planning, it gives a client a sense of confidence to know that the contingency plan is in place.