Estimated Time to Read: 2 Minutes 30 seconds
In our role supporting a variety of Independent RIA Partner Firms, the tru Operations team observes many different trading styles. This gives tru a unique perspective and allows us to share best practices with the rest of the Community. While styles shift from RIA to RIA, what is constant is the need for an effective Trading Process to ensure accuracy and consistency across the firm. Your Trading Process should be documented and periodically reviewed as part of your business planning process.
In today's article, we outline a comprehensive trade process to help advisors and client service associates (CSA) execute trades seamlessly.
- Receive Trade Request - The first step in the trade process involves receiving trade buy or sell requests from clients or advisors. These requests can come through various channels, such as email, phone calls, or an internal system. It is crucial to note that trade requests should not be executed if received via voicemail. Direct contact with clients is necessary to confirm their requests.
- Verify Authorization - Before proceeding, it is essential to ensure that the trade request is authorized according to the firm's policies and procedures. This involves verifying the client's identity and their authorization to place the trade on the designated account. Proper authorization safeguards against unauthorized transactions and maintains the integrity of the trading process.
- Adherence to Investment Policy Statement (IPS) - Next, check the client's Investment Policy Statement (IPS) to confirm that the proposed trade aligns with the client's investment objectives, risk tolerance, and any other specific guidelines outlined in their IPS. Adhering to the IPS ensures that the trade is in the best interest of the client and complies with their established investment strategy.
- Execute Trade - Once all necessary checks are completed, the trade can be executed. This is done through the firm's trading platform or by direct contact with the custodian or brokerage firm. Accurate execution is vital to fulfilling the client's request and achieving the desired investment outcomes.
- Confirm Trade Execution - After executing the trade, obtain confirmation from the trading tool or custodian/brokerage. This step verifies that the trade was processed accurately and in a timely manner, providing assurance that the transaction was completed as intended.
- Record Keeping - Maintaining comprehensive records of all trade activities is crucial for transparency and compliance. This includes keeping trade tickets, confirmations, client instructions, and verification documents. Proper record-keeping ensures that all trade details are documented and can be referenced if needed.
- Communicate with Clients/Advisors - Timely communication with clients and advisors is key to maintaining trust and transparency. Inform them about the status of their trade requests, including confirmation of trade execution and any relevant updates or issues that may arise. Clear communication helps manage client expectations and fosters strong relationships.
- Reconciliation - Reconciliation involves comparing trade activity with internal records/systems or client account statements to ensure accuracy and completeness of all transactions. Regular reconciliation helps identify and rectify any discrepancies, ensuring the integrity of the trading process.
- Monitor Trade Settlement - Monitoring the settlement of trades is essential to ensure timely and accurate processing. Follow up on any discrepancies or issues that may arise during the settlement process to resolve them promptly. Effective monitoring helps prevent settlement failures and ensures smooth transaction completion.
- Periodic Review and Improvement - Finally, periodically review the trade process to identify areas for improvement. Making necessary changes can enhance efficiency, accuracy, and compliance. Continual improvement of the trade process helps adapt to evolving market conditions and regulatory requirements, ensuring optimal performance over time.
By following these steps, advisors and their staff can ensure that trades are executed accurately, efficiently, and in compliance with all relevant guidelines. Implementing a robust trade process is crucial for achieving successful investment outcomes and maintaining client satisfaction.