Telling clients about a model change: what a small RIA should say, and what to record
When a small RIA changes a model portfolio, it should identify every account that follows the model, decide whether the change is material enough to tell clients before or after trading, send a short plain note explaining what changed and why, update any IPS that describes the old allocation, and record who was told, when and how. Keep the note to what changed, why, and what the client needs to do, which is usually nothing.
The investment decision took a quarter to make. The trades take an afternoon. The part that often gets skipped is telling the forty clients whose accounts follow the model, which is the part they'll remember if they look at their statement and see half their bond funds gone.
What should the note say?
- What changed: "We're moving the Growth model from 70% to 80% equities."
- Why, in a sentence or two: "For clients with long horizons, we think the higher equity share suits their goals."
- When: "The trades will be placed the week of 1 April."
- What it means for them: "You may see larger ups and downs from quarter to quarter."
- What they need to do: usually nothing, and how to reach you with questions.
What's the routine around it?
| Step | Record |
|---|---|
| List every account on the model | The list, with the date |
| Check each IPS against the new allocation | Which need updating |
| Send the note | Who received it, date and method |
| Handle replies and objections | Each reply and what was agreed |
| Trade | Trades linked to the new model version |
| Update IPS documents | New version, old version kept |
A worked example
Take a hypothetical two-person RIA moving its Growth model to version 4. Thirty-eight accounts follow it, across 24 households. The advisor sends each household a five-sentence email a week before trading and logs the send. Two clients reply: one with a question, answered by phone; one asking to stay at 70/30, recorded as an exception with a note on the account. Six IPS documents state the old allocation and are updated, with the old versions kept. The trades go on the blotter linked to version 4.
What are the common gaps?
- Clients learning about the change from their statement.
- IPS documents still describing the old allocation.
- No record of who was told.
- A client's objection handled by phone and never written down.
When is this overkill?
For a routine rebalance back to the same targets, it is. For a change to the targets themselves, it isn't.
How Advorra fits
Advorra keeps versioned models, a dated strategy of record for each account, IPS documents that fill from the strategy with every version kept, and client communications on the same record. So you can see which accounts follow a model, which IPS need a new version, and who was told. See the product page, or read about model versions and when to update an IPS.
One thing to do this week: for your last model change, check whether you can show who was told and when.
An operations routine, not investment, legal or compliance advice.
Questions advisors ask
Do clients have to be told about every model change?
Not necessarily for small adjustments within the model's stated range. For changes that alter the model's character, such as a meaningful shift in equity exposure, most firms tell clients. Your advisory agreement and compliance consultant can guide you.
Before or after the trades?
For material changes, many firms tell clients before trading. For routine rebalancing, no notice is usually needed.
Does the IPS need to change?
If the IPS states the old allocation or range and the new one falls outside it, yes. Update it and keep the old version.
What if a client objects?
Record the objection, discuss it, and if they want to stay on the old allocation, treat their account as an exception with a written reason.
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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