Non-discretionary trades: how a small RIA gets and records client approval
For a non-discretionary account, a small RIA must get the client's approval before placing each trade. The routine is to propose the specific trades, get approval from the person authorised on the account, record who approved, what, when and how, then place the trades and link them to that approval. If approval doesn't come, the trade doesn't happen, and that is recorded too.
The rebalance is ready for twelve accounts. Ten are discretionary and go out that afternoon. Two are non-discretionary: a trust where the trustee signs off every trade, and a client who asked to approve changes herself. Those two need something the other ten don't: a yes, from the right person, before anything is placed, and a record of it.
What's the routine?
- Propose specific trades: what to buy or sell, roughly how much, and why.
- Send the proposal to the person authorised on the account, not just the person you usually speak to.
- Get a clear approval, in a form your procedures accept.
- Record it: who, what was approved, date and time, and how.
- Place only the approved trades, and link them to the approval.
- Record anything declined or not answered.
What should the approval record show?
| Field | Example |
|---|---|
| Account | The trust account |
| Proposal | Sell part of the bond fund, buy the equity fund, to bring the account back to target |
| Approved by | The trustee, as named in the trust documents |
| How and when | Email reply, 3 March, 2:10pm |
| What was approved | All, part, or none |
| Trades placed | Linked to the approval |
A worked example
Take the two accounts above at a hypothetical two-person RIA. The advisor emails the trustee a three-line proposal and calls the second client. The trustee approves by email the same day; the trades go out and are linked to the email on the blotter. The client approves the sale but not the purchase, wanting to hold the cash for now. Only the sale is placed, and the declined purchase is recorded. At the next review, the advisor can show exactly what each client agreed to.
What are the common gaps?
- Non-discretionary accounts swept into a batch rebalance.
- Approval from a family member who isn't authorised on the account.
- Phone approvals with no note of what was agreed.
- Trades placed days later at very different prices without asking again.
When is this overkill?
It isn't, for any non-discretionary account. If you have none, make sure your discretionary list confirms that.
How Advorra fits
In Advorra, each account carries its discretionary status, trades are logged on a blotter linked to the strategy with an exception queue, and non-discretionary accounts can be put on trade hold so they aren't swept into a batch rebalance. See the product page, or read about held-away and non-discretionary accounts and the discretionary account list.
One thing to do this week: list your non-discretionary accounts and the person authorised to approve trades on each.
An operations routine, not legal or compliance advice. Your advisory agreement and procedures set what counts as approval.
Questions advisors ask
What counts as approval?
Whatever your advisory agreement and procedures accept, typically a clear yes by phone, email or signed form from a person authorised on the account. Record it either way.
Can a phone approval be enough?
Often, if your procedures allow it. Write down the date, time, who approved and exactly what, straight after the call.
What if the client approves part of the proposal?
Place only what was approved and record the rest as declined.
What if prices move before we trade?
If the trade changes materially from what was approved, ask again. Your procedures should say what counts as material.
Is this compliance advice?
No. It is an operations routine.
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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