Held-away and non-discretionary accounts: how a small RIA records the accounts it doesn't fully manage
Not every account a small RIA knows about is one it manages with discretion. Give each account a clear status, such as discretionary, non-discretionary, limited purpose, held away or reporting only, and record what the firm may do with it, whether it's billed, and the document that sets that out. Then make sure the status drives what happens: held-away and reporting-only accounts stay out of model trades, and anything not billable is excluded before the fee is calculated.
A household has six accounts. Three are managed with discretion at the firm's custodian. One is the husband's 401(k) at his employer, which the advisor looks at once a year. One is a small brokerage account the wife trades herself and asked the firm to keep an eye on. One is a trust account where every trade needs the trustee's sign-off. On a household summary they look identical. In practice, the firm can do something different with each of them.
What statuses are worth using?
| Status | What the firm can do | Usually traded to model? |
|---|---|---|
| Discretionary | Trade within the agreed strategy without asking each time | Yes |
| Non-discretionary | Recommend trades; the client approves each one | Only after approval |
| Limited purpose | Act only for a stated purpose, such as holding cash for a planned withdrawal | No |
| Held away | Advise or track; trading happens elsewhere | No |
| Reporting only | Include in reports and conversations; no management | No |
What should each account record show?
- The status, and the date it took effect.
- The document that sets it out: advisory agreement, limited mandate, client instruction.
- Whether the account is billable, and any exclusion that applies.
- The strategy it follows, if any.
- Who at the client approves trades, for non-discretionary accounts.
Where do the mistakes happen?
- Trading: a non-discretionary or held-away account swept into a model rebalance.
- Billing: a reporting-only account included in the fee calculation, or a billable account left out.
- Records: the discretionary list shows an account as discretionary long after it moved.
- Performance: held-away accounts mixed into a model's results.
A worked example
Take the household above at a hypothetical two-person RIA. The assistant sets each account's status from the documents on file. The 401(k) is marked held away, not billed, no strategy. The self-directed brokerage account is reporting only. The trust account is non-discretionary, with the trustee named as approver. The quarterly rebalance then picks up only the three discretionary accounts, billing excludes the two the firm doesn't manage, and the discretionary list matches the accounts the firm actually trades.
Common gaps
- A status agreed on a call and never written down.
- Statuses kept in a spreadsheet that billing and trading don't read.
- No date on a status change, so you can't show what applied last quarter.
When is this overkill?
If every account you know about is discretionary and billed the same way, one status is enough. As soon as a household has an account you only track, record it as such.
How Advorra fits
In Advorra, each account carries its discretionary status alongside its strategy, and billing exclusions sit on the record rather than in someone's memory. Accounts from your custodian's files that aren't matched yet show up as unassigned until someone links them to a household. See the product page, or read about keeping the discretionary list accurate and households, members and accounts.
One thing to do this week: pick your three largest households and check every account has a status you could defend.
An operations guide, not legal or compliance advice. Your advisory agreement sets what you may do with each account.
Questions advisors ask
What is a held-away account?
An account held somewhere other than your firm's custodian, such as a 401(k) at an employer's plan provider. You may advise on it or simply track it, but you usually can't trade it directly.
What does non-discretionary mean?
The firm needs the client's approval before each trade, rather than trading on its own judgment within the agreed strategy.
Should held-away accounts be billed?
It depends on your advisory agreement. Some firms bill on advice given about held-away assets, many don't. Whatever you agreed, record it on the account.
Do these accounts belong on the discretionary list?
Only accounts managed with discretion. Keep the list accurate by updating it whenever an account's status changes.
Is this compliance advice?
No. It is an operations guide. Your advisory agreement and compliance consultant decide the rules for your firm.
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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