Block trades and fair allocation: an operations routine for small RIAs
When a small RIA trades several accounts together as one block, it should write down which accounts are in the order and how much each gets before the order is placed, share partial fills by a method set in advance (usually pro rata), give every account the same average price, and record the allocation on the trade record. Any change after the fill needs a written reason. Your compliance consultant can help write the policy itself.
A firm rebalances twenty accounts into the same fund and places one order. The market moves, and only 70 percent fills. Which accounts get shares today and which wait until tomorrow? If the answer is decided after the fill, by whoever is at the desk, nobody can later show it was fair. If it was written down before the order went in, there's nothing to explain.
What should be decided in advance?
| Question | Common answer |
|---|---|
| Which accounts are in the block | Listed before the order is placed |
| How much each account gets | Its intended amount, on the record |
| How a partial fill is shared | Pro rata to the intended amounts |
| What price each account gets | The average price of the block |
| Where any firm or employee accounts sit | Last in line, or as your policy says |
The routine
- Build the account list and intended amounts before placing the order.
- Place the block.
- Allocate the fill by the method you set in advance, at the average price.
- If anything changes after the fill, write down why and who approved it.
- Keep the allocation with the trade record.
A worked example
Take a hypothetical two-person RIA moving 20 accounts on its Balanced model into a new bond fund. Before trading, the operations lead records each account's intended amount. The order fills 70 percent, so every account gets 70 percent of its amount at the same average price, and the rest is placed the next morning by the same method. One account is skipped on day two because the client has asked for cash; the reason is noted on the trade record.
What are the common gaps?
- Allocation decided after the fill.
- Partial fills given to whichever accounts were entered first.
- Different prices for accounts in the same block.
- Changes after the fill with no reason recorded.
- No written allocation policy at all.
When is this overkill?
If you trade each account on its own and never combine orders, you don't need a block routine. You may still want a line in your procedures saying so.
How Advorra fits
Advorra keeps a trade blotter linked to each account's strategy, with an exception queue for trades that differ from the model, so the intended trades and what actually happened sit on the same record. See the product page, or read about batch rebalancing and correcting trade errors.
One thing to do this week: check whether your written procedures say how partial fills are shared.
An operations routine, not legal or compliance advice. Your written trade allocation policy and your compliance consultant set the rules.
Questions advisors ask
Why does allocation matter?
When accounts are traded together, a regulator may ask whether any account, or the firm's own, got better prices or more of a limited fill. A record made before the order answers that.
What is a partial fill?
When only part of the order is filled. Your policy should say in advance how a partial fill is shared, often pro rata to each account's intended amount.
Do all accounts get the same price?
Usually each account gets the average price of the block. Your policy should say so.
What if we change the allocation after the fill?
Write down the reason and who approved it. Unexplained changes after the fill are what draw questions.
Is this compliance advice?
No. It is an operations routine. Your written policy and your consultant set the rules.
See it on a demo firm
Advorra is practice software for independent RIAs: clients, models, IPS, billing and compliance records in one place, on top of the custodian you already use. Built by The CollabHub.
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