Client investment restrictions: how a small RIA records them so model trades respect them
A client investment restriction is any limit a client places on how their account is managed, such as excluding a company or sector, keeping a legacy holding, or avoiding certain fund types. A small RIA should record each restriction on the account with the date and the client's words, reflect it in the IPS, and check restricted accounts before every model trade or rebalance so the trade doesn't override what the client asked for.
A client mentions in a review that she doesn't want to own any tobacco companies, and that her late husband's shares in his old employer are not to be sold. The advisor nods and writes it in the meeting notes. Six months later, a model rebalance buys a fund with a large tobacco holding and trims the employer shares. Nobody did anything careless. The instruction just wasn't anywhere the rebalance could see.
What kinds of restrictions come up?
| Type | Example | How it usually affects trading |
|---|---|---|
| Exclude a company | "Nothing from my former employer's competitor" | Avoid buying it; substitute if the model holds it |
| Exclude a sector or theme | Tobacco, firearms, fossil fuels | Screen funds and stocks; may need substitutes |
| Keep a holding | Inherited shares the client won't sell | Don't sell; adjust the rest of the account around it |
| Limit a fund type | No funds that borrow to boost returns, no alternatives | Avoid those vehicles |
| Cash or liquidity need | Keep a set amount in cash | Leave it out of rebalancing |
How should you record one?
- Write it in the client's words, with the date and how it was given (meeting, email, form).
- Put it on the account, not just in notes, so anyone trading sees it.
- Add it to the IPS, or note it as an exception to the model.
- Confirm it back to the client in writing, especially if it may affect results.
- Review it at each client review, and record if it's removed.
How do you check before trading?
- List restricted accounts before each rebalance or model change.
- Check each proposed trade against the account's restrictions.
- Route any conflict to the advisor rather than letting it through.
- Record what was done instead: a substitute, a skipped trade, a held position.
A worked example
Take the client above at a hypothetical two-person RIA. After the review, the assistant records both restrictions on the account with the date and the client's wording, adds them to the IPS as exceptions to the model, and emails the client to confirm. At the next rebalance, the advisor's restricted-accounts check flags the account: the employer shares are left alone and a tobacco-free fund is used in place of the model's broad fund. The trades are logged with the reason.
What are the common gaps?
- Restrictions only in meeting notes.
- A model change that silently undoes a restriction.
- No date, so you can't show when the client asked.
- Restrictions nobody has reviewed in years.
When is this overkill?
If no client has ever asked for a restriction, you don't need a process yet. The first time one does, record it properly.
How Advorra fits
Advorra keeps each account's strategy, IPS versions and trade history together, with an exception queue on the trade blotter and trade holds when an account shouldn't be traded. So a client's instruction sits next to the trades that need to respect it. See the product page, or read about writing an IPS and monitoring concentrated positions.
One thing to do this week: search your recent meeting notes for "don't", "won't" and "no" and check each instruction is recorded on the account.
An operations guide, not investment advice.
Questions advisors ask
Where should a restriction be recorded?
On the account, with the date, the client's instruction, and a note in the IPS. If it lives only in meeting notes, the person rebalancing won't see it.
Does a restriction mean a separate model?
Usually not. Most firms keep the account on its model and handle the restriction as an exception at trade time. Create a new model only if many clients share the same restriction.
What about restrictions that cost performance?
Explain any likely effect to the client and record that you did. The client's instruction stands.
How often should restrictions be reviewed?
At each client review. Clients' views change, and an old restriction may no longer apply.
Is this investment advice?
No. It is an operations guide for recording what clients ask for.
See it on a demo firm
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