How many model portfolios should a small RIA run?
A model portfolio is a defined allocation, benchmark and rebalancing rule that a group of accounts follows. Most small RIAs are better served by a small set of models they can maintain properly than by a large menu. Add a model only when a meaningful group of clients needs a genuinely different allocation, benchmark or rule set, and record accounts that don't fit honestly as personalized, limited purpose, non-discretionary or reporting only.
A firm adds a model for one client who wanted less international exposure. Then another for a client nearing retirement. Then a version with a different bond fund. Three years later it has eleven models, and the adviser can describe four of them from memory. The other seven still have accounts on them.
What does each model cost to maintain?
Each model costs a documented allocation, a benchmark, a rebalancing rule, a review on schedule, and IPS documents that match it. None of these is a one-off. A model that was set up carefully and then left alone becomes the one where drift goes unnoticed and the IPS describes a version that no longer exists.
| Ongoing task per model | What happens when it slips |
|---|---|
| Review the allocation on schedule | The model no longer reflects the firm's current view |
| Rebalance accounts to it | Accounts drift from target with no record of why |
| Version every change | Nobody can say what the model looked like on a given date |
| Keep IPS documents aligned | Client documents describe an old allocation |
| Report against its benchmark | Performance can't be explained against the right comparison |
How many models does a small RIA need?
A small RIA needs the smallest set that fits its clients and that it can review, rebalance and document on the same schedule. There's no correct number. The limit is capacity: if you can't name every model and the last date it was reviewed, you have more than you're maintaining.
When should you add a new model?
Add a model when a group of clients needs something genuinely different and you can maintain it like the others. Run the request through four questions first.
| Question | If the answer is no |
|---|---|
| Does a meaningful group of clients need it? | Handle the one client as personalized instead. |
| Is the allocation, benchmark or rule set genuinely different? | It's a variation of an existing model, not a new one. |
| Can you review and rebalance it on the same schedule as the others? | You won't maintain it properly. |
| Can you document it with the same care? | It will become the model nobody can explain later. |
A worked example
Take a two-person RIA with about 120 households and nine models. The firm and its numbers are hypothetical. The advisers list every model with its account count and last review date.
- Four models hold most of the accounts and were reviewed this year.
- Two are near-copies of a balanced model, differing by a few percentage points in one asset class, with the same benchmark and rebalancing rule.
- Two were built for single clients and have one account each.
- One has no accounts left on it.
The firm merges the two near-copies into the balanced model, moving each account with a dated entry and a new IPS version. It reclassifies the two single-client models as personalized accounts with a written note on the strategy each follows. It retires the empty model and keeps its history. The firm ends with four models it can describe and review, plus two documented personalized accounts. Client money only moved where an adviser decided it should, and every account now has a strategy someone can explain.
What about accounts that don't fit a model?
Record them honestly rather than forcing them into a model. Every book has them: a legacy position the client won't sell, a held-away 401(k), a trust with special restrictions. Label each as personalized, limited purpose, non-discretionary or reporting only, with a note on why and what strategy, if any, it follows. An honest category is easier to explain than an account that "follows" a model it doesn't match.
How do you keep a small set healthy?
- Version every change with its date and reason.
- Review each model on a fixed schedule.
- Know which accounts follow which model, from which date.
- When a model changes, check which IPS documents need a new version.
- Retire models you no longer use, rather than leaving them half-maintained.
Trade-offs
Fewer models means some clients sit in a model that's close to, but not exactly, what you'd build for them alone. That's a real cost, and for some clients a personalized account is the right answer. A low count is only useful if every model on the list gets the same attention and every exception is recorded as one.
How Advorra handles models
Advorra keeps versioned model portfolios with their allocation, benchmark, philosophy and rebalancing rules, a dated strategy of record for every account (including non-discretionary and reporting-only accounts), and IPS governance templates for core, personalized and tactical mandates. If you're cutting your model list down, see how versions and the strategy of record work on the product page, or read about model versioning.
An operational perspective, not investment, legal or compliance advice.
Questions advisors ask
Is a model with a 5% different stock weighting a new model?
Usually not. If the benchmark and rebalancing rule are the same and only the weights shift slightly, you have one model and a variation. Treat it as a new model only if you'll review, document and report on it separately.
How do I retire a model with accounts still on it?
Move each account to its new strategy with a dated entry, update the IPS documents that referenced the old model, then mark the model retired. Keep its history; don't delete it.
Can one household have accounts on different models?
Yes, and it's common: a taxable account and an IRA in the same household often follow different strategies. Record the strategy per account, not per household.
Should tax-managed versions be separate models?
Only if the rules really differ, for example different holdings or a different rebalancing approach. If the only difference is how you handle realised gains when trading, that is an account-level note, not a model.
Is this investment advice?
No. It is an operational way to think about maintaining models. Investment decisions are the adviser's.
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.
Get in touch