For many advisors, the storm undoubtedly put their business continuity plans to the test.

Many advisors are required by the Security Exchange Commission to have disaster recovery plans and the plans are scrutinized when regulators conduct audits. In addition, disasters can occur from other crisis, such as computer viruses, terrorist acts, fires, epidemics and building issues.

Assessing the Risk

Advisors typically evaluate a wide range of factors when creating or updating their plans. Most advisors start by assessing the types of risks their businesses face. For example, advisors located in coastal areas are subject to hurricanes while in the mid-west, advisors may be more likely to encounter tornados or forest fires.

When considering those hazards, advisors need to assess the amount of time that those events may prevent them from using their offices. The inventory of hazards should also include a list of risks associated with each disaster. Such risks can include disruptions in trading and compliance functions that may allow daily changes in security prices to cause portfolios to exceed established risk parameters.

Reputational Risk

Other issues can include reputational risks and damage to client relations that may occur if firms don't promptly update their customers during disasters or respond quickly to inquiries from investors. Advisors also need to assess the geographical range of risks. That way advisors can determine where to locate contingency offices that aren't likely to be impacted by the same disasters that can impair their primary business locations.

Disaster planning should assess how long they can go without conducting certain tasks. The simple nature of their business, however, means that many tasks must be handled promptly.

Ensuring Capabilities

Needless to say, clients will want to receive frequent updates regarding how their advisors are managing assets during disasters. At the same time, advisors will need to continue with managing assets, so they will need to ensure that trading capabilities at backup locations are functional. By assessing which tasks must be handled promptly, advisors can develop plans that provide for adequate resources to conduct essential tasks during disasters.

Remote offices are often a central component of disaster plans. Their locations typically reflect a balance of requirements that the facilities be located beyond perils that can knock primary offices offline but be close enough for essential workers to travel to. By determining which tasks must be conducted promptly during a disaster, advisors can ensure that their backup offices have sufficient space for needed office equipment, essential workers and other resources.

Advisors should also evaluate how employees can travel to backup offices. Ideally offices should be located close to major highways and be accessible by public transportation. In some cases, larger firms may seek backup locations that are close to major airports that have hotels nearby to accommodate workers. Advisors may also make other arrangements, such as carpooling or providing van rides to get employees to backup offices.

Who’s in Charge?

Furthermore, disaster plans should include steps for contacting employees so that workers can be told to report to backup locations. With that in mind, advisors should ensure they have a convenient and updated list of employee contact information, including email, cellphone numbers and traditional landline telephone numbers. The plan should include instructions regarding which managers or employees will be required to contact workers.

Vendor Risk

Advisors need to assess how they can retrieve data for client records and portfolio management functions. As such, it's key to determine the backup capabilities that your vendors provide.

For example, customer relationship management software may be "cloud based" or hosted by vendors at remote locations. In a similar manner, custodians and broker dealers house trading records remotely. Advisors may turn to vendors that specialize in providing backup data and disaster recovery services, such as SafetyNet for Advisors and Investment Technology Partners.

With Sandy in the news this week, it’s a logical time to talk about emergency preparedness. However, it’s not the ideal time to begin to check your capabilities. Advisors should routinely review their plans to ensure that the programs reflect changes in services that are offered and any changes in potential risks are identified.

In a similar manner, advisors should conduct drills to practice implementing their plans, contact workers to ensure telephone numbers are current and require employees to report to backup facilities to test out capabilities.