1. Business Continuity Planning For ACS Clients

2. NSAA Proposed Model Rule  Assist Advisers in responsibility to maintain business continuity  Protect clients from business interruptions  Mitigate client harm This responsibility stems from post-registration recordkeeping and fiduciary duties

3. Proposal The proposal includes a model framework for:  Protection, back-up, and recovery of records  Alternate means of communication  Process for office relocation  Assignment of duties  Otherwise minimizing service disruptions in a significant business interruption Intended especially for small and mid-sized advisers

4. Model Rule Procedures must be created for the Business Continuity Plan and consider:  Size of the firm  Type(s) of services provided  Number of locations BCP must provide for:  Protection, backup, and recovery of books & records  Establishing alternate means of communication with:  Customers, key personnel, employees, vendors, service providers (incl. 3rd party custodians), and regulators  Establishing a process for office relocation  Assignment of duties to qualified responsible persons  Otherwise minimizing service disruptions and client harm in the event of a significant business interruption All BCPs should include a Succession Plan

5. Succession Plan Consider how the loss of key personnel will cause difficulties for your client and consider the designated person who will execute the plan  Major subjects in planning for unexpected succession: 1.Entity Type 2.Designated Person 3.Service Issues 4.Development of the BCP 5.Loss of Personnel 6.Testing & Maintaining the BCP

6. 1. Entity Type  Are investment advisory contracts with an individual or legal entity?  How will the Adviser ensure continuity of services?  What will happen in the event of unavailability of the manager of discretionary accounts?  How will the incapacity of certain individual owners affect the legal ownership of the firm?  What persons have IARD access and what will happen if that contact is unavailable?  Who is responsible for dealing with creditor and vendors?  Who will rebate advisory fees paid in advance?

7. 2. Designated Person The availability and registration status of an individual with knowledge of the Adviser's business is an important factor for a succession plan Preserve substantial knowledge of client services and investment objectives Be familiar with business operations to properly wind it down or facilitate the transfer of accounts Review all legal documents and advisory contracts Designated Persons Should: The Adviser must ensure that it has proper pre- arranged client authorization to share sensitive information with the designated person. The assignment of accounts requires client consent. Succession by amendment or by application filing with the state may be required.

8. 3. Service Issues The Adviser must plan to ensure clients are immediately notified of interruptions in asset management services (If Adviser has custody of assets, clients must be authorized to obtain their assets) The client needs to know:  Whether accounts are being managed  Where the accounts are held  How to access their accounts  Advisers need to address issues involved with liquidation or continued management of pooled assets  BCP may need to include specific instructions for illiquid, time-sensitive, or high-risk security investments

9. 4. Development of the BCP Questions Advisers should consider in drafting BCPs:  What risks could interrupt operations and client service?  How can these risks be managed?  How will employees be trained about the BCP?  How will the BCP be updated?  How will the BCP be available to key personnel?  Does the BCP fit the current method of business operations?  How will the BCP accommodate specific considerations of small firms?

10. Risk Management Types of Risks:  Natural disasters  Equipment and/or system failures and destruction of records  Terrorist acts  Unexpected loss of a market service provider  Unexpected loss of key technology service providers Management Considerations:  Data backup and recovery  Redundancies in mission-critical systems  Financial and operational assessments  Communications with regulators, clients and employees  Communications with broker-dealers, custodians and service providers  Short or long-term office relocation;  Advance consent from clients for assignment to another Adviser  Obtaining critical business services from providers  Client access to information and accounts

11. BCP Updates & Training How will employees be trained about the BCP and their duties during a sudden business interruption? How & how often will the BCP be updated? Conduct an annual desk-top exercise to test the adequacy of the BCP Review the BCP at staff meetings Review the BCP when material changes occur with personnel, firm location, software, communication equipment, or service providers How will the BCP be well-documented and available to key personnel within the location and remotely?

12. Adviser Customization Does the BCP fit the Adviser's current method of business operations?  Types of services provided (asset management, custodial, etc.)  Type of legal entity  Number of office locations How will the BCP accommodate the specific considerations that small firms may have?  Adequacy and allocation of resources  Selection of off-site backup facilities  Ensuring redundancy of knowledge within staff  Designation of personnel responsible for executing the Succession Plan

13. 5. Loss of Personnel Succession Questions: A non-exhaustive list of issues that should be considered in developing a Succession Plan  How will clients be informed of the death or disability of key personnel?  What does the Adviser expect that clients should do in the event of a loss of key personnel?  How are those expectations communicated to the firm's clients prior to a loss of key personnel?  Should this information be included in the Adviser's Form ADV part 2A or Advisory Agreement?  Will the Adviser continue to service client accounts?  If an equity owner dies, what will happen to the advisory firm?  Will the business be bought out or sold to the partner's family or heirs?  Will the Adviser take on the late partner's heirs as associates?  Will any of these individuals need to be registered?

14. Will the Adviser adopt an “internal” or “external” Succession Plan? In an internal plan, the Adviser transfers the advisory responsibilities to another Adviser Representative currently in the firm  Will the change result in an assignment? If so, how will the Adviser receive the client's consent before the assignment?  Will the Adviser reorganize under a different name with different management?  Who will update the Form ADV? Does this person have IARD account access?  How will the successor access the Adviser's books and records?  Who will update the custodian? Does the custodian require this contingency to be set-up in advance?  If it is a temporary disability, will the Adviser or Adviser Representative be able to restore his or her previous accounts? In an external plan, the Adviser transfers client management to another advisory firm

15. Will the Adviser close down? Has the firm communicated to other individuals (attorneys, accountants, spouses, etc.) how to dissolve the firm in the case of death or permanent disability of the firm’s key personnel? Does that other individual need to be registered? Who will inform the custodian (broker-dealer, bank, etc.)? Does this person have authorization on the Adviser’s account? Does the custodian require this contingency to be set-up in advance? Who will file the Form ADV-W to terminate the Adviser’s registration? Does that person have IARD account access? Who will store the Adviser’s books and records for the required retention period? How will clients know how to contact their custodians? Will the Adviser recommend a new adviser? If not, do the clients have the expertise to take control of illiquid, low volume, volatile or hedged positions that had previously been managed by the Adviser (such as private placements, options, or micro-cap securities)? Will the Adviser want to set-up a possible replacement Adviser? If so, will the new adviser contact the clients? Does this require prior client consent to share this information? How and when will the new adviser execute new contracts with the clients? Will the business liquidate?

16. Additional Questions  If the firm is a sole proprietor (or has a single investment adviser representative), will clients be able to manage their own affairs (including buying and selling securities, if necessary, under prevailing market conditions) until such time as they can engage a new adviser?  If the Adviser manages assets, do clients know the location of all of their assets and how to gain access to their accounts?  If the Adviser manages a fund and something happens to the managers, will the fund be liquidated?  If so, how will liquidation be initiated?  Who will notify the liquidator?  If not, what will happen to the fund?  If the Adviser charges fees in advance, what is the process of refunding unearned fees?  Are there additional tax considerations that have to be included in the Succession Plan?  How will the Adviser inform its regulator(s) of the plan and any updates to the plan?

17. 6. Testing & Maintenance Advisers should periodically test the BCP Suggested Test Areas:  Hardware functions at alternative business location  Access to back-up files  Verification of current contact info and duties for employees, clients and critical business partners  Verification of current vendors, service providers, software and equipment  Conformance to current business practices with the plan  Conformance to regulatory requirements