TL;DR: An RIA should look for a partner that can run its finance and HR back office at controller level and advise its clients on philanthropy, while leaving investment strategy and the client relationship entirely with the advisor. On the back office, the tests are fee billing that reconciles, advisor compensation tied correctly to billed revenue, records kept to regulatory standards, and data protection that meets the amended Regulation S-P. On philanthropy, the tests are giving strategy, foundation operations, and real due diligence on the organizations clients fund.
An advisory firm is judged by two things clients rarely see: whether the business behind the advice runs cleanly, and whether the firm can help with the parts of a family's financial life that fall outside the portfolio.
Giving is the clearest example. Many clients want to give well and are unsure how. Their questions are not investment questions. Which organizations are healthy? How should a family foundation make decisions? How much can we give without harming the plan? An advisor with no good answer loses a meaningful conversation. An advisor who refers the client to someone who then competes for the relationship loses more.
The right partner solves both problems without creating the second one.
What should an RIA's back office be able to do?
The core work is familiar to any growing firm: books that close on a committed day, reconciled accounts, reliable payroll, and HR that keeps pace with hiring. An advisory firm adds four requirements.
- Fee billing that reconciles. Advisory fees are usually calculated from account values held at a custodian. Billed revenue should tie to those values and to the fee schedules clients agreed to, every period, with exceptions explained rather than absorbed.
- Advisor compensation tied to revenue. When pay depends on billed fees, a billing error becomes a compensation error. Plan design, calculation, and the payroll run have to stay connected.
- Records kept to regulatory standards. SEC Rule 204-2 requires SEC-registered advisers to keep financial records such as journals, ledgers, and bank statements, generally for five years, with the first two in an appropriate office. Your accounting partner's practices should make that easy to demonstrate rather than something to reconstruct.
- Vendor oversight under Regulation S-P. The SEC's 2024 amendments to Regulation S-P require covered advisers to oversee service providers with access to customer information, and both compliance dates have now passed. Any partner handling billing data falls inside that obligation and should be able to show how it protects the data and what it would do in an incident.
None of this replaces your chief compliance officer or compliance consultant. It gives them clean inputs.
Where do an advisory firm's operations usually break?
At the seam between revenue and people. Follow one quarter's billing.
Account values come from the custodian. Fees are calculated against schedules and household groupings. Billed revenue is recorded in the ledger. Advisor pay is calculated from that revenue under a plan HR designed. Payroll pays it. If a household grouping is wrong, or a fee schedule was updated in one system and not another, the error travels through every step, and it usually surfaces as a client question or an advisor dispute rather than in the books.
That is five steps across billing, accounting, HR, and payroll. The failure is rarely competence. It is that no one owns the whole path.
The same is true at the edges of the firm. A new advisor in another state creates payroll registration obligations. A retiring partner raises valuation and transition questions that depend on clean financial history. A firm that may one day sell, merge, or take outside capital will find that the quality of its books affects what it is worth. See the difference between a bookkeeper, a controller, and a CFO.
What should philanthropic advising include?
Philanthropic advising helps a client decide what to support, how, and through which structure, and then helps them carry it out well. It is distinct from investment management, and it should stay that way.
- Giving strategy. Clarifying what a family cares about, how much it intends to give over what time frame, and how giving fits the plan the advisor has built.
- Structure and operations. Whether a donor-advised fund, a private foundation, or direct giving fits the family, and then running it well: grant processes, family decision-making, records, and reporting. Legal and tax structuring belongs with the client's attorney and CPA. A good philanthropic partner coordinates with them rather than replacing them.
- Due diligence on organizations. Reading a charity's financial statements, Form 990, budget, and governance the way an operator would. A partner who has worked inside churches and nonprofits sees what a donor cannot: whether restricted funds are handled properly, whether the organization depends on one person, and whether the numbers tell the truth.
- Measuring what the giving does. Agreeing in advance what a gift is meant to accomplish and how the family will know.
Where does a family foundation need both roles?
The private foundation is where investment management and philanthropy meet, which makes it the clearest test of whether the two stay properly separated.
Under Section 4942 of the Internal Revenue Code, a private foundation must generally distribute at least 5 percent of the value of its assets not used directly for charitable purposes each year, or face excise taxes on the shortfall. The advisor manages the assets that determine that amount. Someone else has to make grants that satisfy it, keep the books, support the annual Form 990-PF, and evaluate the organizations receiving the money.
When those roles are unclear, foundations drift. Grants cluster at year end to meet the requirement rather than to accomplish anything. Due diligence becomes a formality. The family's intentions get lost in administration. When the roles are clear, the advisor manages the portfolio, the family decides, and the philanthropic partner makes the giving work.
What should an RIA require of any partner it introduces to clients?
An introduction carries the advisor's reputation. Five requirements protect it.
- No investment advice, ever. The partner does not manage assets, recommend investments, or suggest moving accounts. Novum does not do investment strategy, and that line is the reason the relationship works.
- The advisor stays at the center. The partner coordinates with the advisor, keeps them informed, and does not build a separate relationship around them.
- Coordination with the client's attorney and CPA, so structural and tax decisions are made by the people responsible for them.
- Confidentiality and data protection that meet the standard your own firm is held to.
- Clear scope and clear communication, so the client always knows who is responsible for what.
What questions separate a partner from a vendor?
- Walk me through one quarter of our billing, from custodian values to advisor pay. Who owns each step?
- How do you keep our financial records so we can demonstrate compliance with Rule 204-2?
- How do you protect client data, and what is your incident response process?
- When you work with one of our clients on giving, how do you keep us informed?
- What will you never do in a client relationship we introduce?
- How do you evaluate a charity or church a client wants to support?
- If we part ways, what do we receive and how quickly?
The Counter-Move
Most advisory firms treat the back office as overhead to minimize and philanthropy as a favor to handle informally. Both choices are understandable. Both leave value on the table.
The counter-move is to treat the back office as part of the client experience, because billing accuracy and data protection are things clients feel, and to treat philanthropy as part of the plan, because for many families giving is where their deepest intentions show. A partner who can serve both, and who will never compete for the portfolio, lets the advisor extend the relationship without diluting it.
An invitation
If your firm has grown faster than its back office, or your clients are asking giving questions you would rather not answer alone, both are solvable.
Novum works with advisory firms as a finance, HR, and operations partner and as a philanthropic advising resource for their clients, and does not do investment strategy. If it would help to talk through either, we would be glad to have that conversation. For what the whole function should cost, see what a growing business or RIA should spend on finance.