November 2, 2022

FINRA Issues Guidance on Managing Succession Plans

Steven Lofchie Commentary by Steven Lofchie

FINRA issued guidance on developing or modifying succession plans for individual registered representatives in the event of the individual's retirement, death, disability or illness. The guidance addresses how to ensure the continuity of essential operations and other business continuity issues should a representative have a major life event.

In a regulatory notice, FINRA said that maintaining succession plans benefits member firms, their registered representatives and the customers they serve. FINRA said that a proper succession plan will prevent an interruption in service and that forgoing a succession plan may subject successors to challenges, and possibly even regulatory enforcement. Additionally, FINRA included a list of questions that firms, representatives and customers should consider when developing a succession plan. FINRA emphasized that succession plans should be tailored to the plan holder's needs. Questions for consideration include, but are not limited to:

  • Does the plan address (i) succession planning for representatives' life events, (ii) representatives who plan to return to the industry and (iii) training for representatives in the firm's program?

  • Does the firm offer any tools or services to aid in introducing or matching representatives who may be interested in succession planning?

  • Does the firm consider any additional steps that may be necessary for succession planning for key staff?

  • Does the firm address the risks of diminished capacity that may impact representatives' ability to meet obligations to customers and comply with legal and firm requirements?

  • Does the firm require review or approval of succession plans?