EDITORIAL: WHY NOW? BECAUSE Y2K IS ALMOST HERE

The Securities and Exchange Commission is making a fuss about the Y2K bug, aka the millennium bug, by thinking about requiring advisers, large and small, to report their year 2000 compliance efforts.

The SEC is not being alarmist. In case you’re the one person on the planet who hasn’t heard yet, the Y2K bug is a computer programming flaw that could shut down computer systems and computer-driven machinery on Jan. 1, 2000, if not found and corrected before then.

The magnitude of the potential problem is shown by the magnitude of the expenditures being incurred to fix it by major institutions. J.P. Morgan plans to spend $250 million this fiscal year alone on the problem. Citicorp estimates its total Y2K expenditures will top $600 million. Most major institutions are spending similar amounts — one reason for the bevy of big banking and financial services mergers in recent months.

But many smaller companies have so far ignored the threat, though the deadline is only a little over 18 months away. One survey showed a majority of companies with 100 employees or less had not even considered the millennium problem.

Those using PC-based software and systems developed within the past five years should have few problems. Large organizations using proprietary software, or modifications of generic software, more than five years old, especially mainframe-based, will be most at risk. But every company, even two-person advisory firms, should check their vulnerability to the problem. No one should assume invulnerability.

The first move should be calls or letters to all software suppliers asking if their products are Y2K-compliant.

The second move would be to ask for a safe test so you can double-check for yourself.

The third move would be to contact major service providers — mutual fund companies, clearing houses, etc. — to ask what steps they have taken to ensure their systems will not shut down when 2000 begins.

Don’t wait. Far better to test systems now and discover potential problems early while there’s time to fix them, and programmers and vendors are not too swamped to help, than to trust your luck and find a key part of a system shut down in the first week of January 2000 when clients want answers.

The firm that takes action now will be prepared for anything, even SEC disclosure, if it’s required.