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An Investment Policy Statement (IPS) is a written document crafted
for a specific investor which outlines all of the most important issues,
including goals, policies and procedures as agreed to by both advisor and
client for the purpose of managing the client’s investments. An IPS is required
when a fiduciary relationship exists and is regularly cited as a best practice
in the modern wealth management practice.
Whether an investor is an individual, employee benefit plan, endowment,
foundation or trust, an IPS serves several important purposes in the
relationship between financial advisor and investor. An Investment Policy
Statement should clearly state the investor’s goals while also establishing the
investment management procedures. As such, the IPS provides the foundation for
all future investment decisions the manager will make on the investor’s behalf.
In turn, it also serves as a guidepost for the investment decision-makers,
creating a system and a discipline for all future investment decisions.
An indispensable tool in today’s wealth management industry, an IPS can improve
your practice by allowing you to realize the benefits that come with better
serving your clients.
The creation of an IPS forces you to confront complex issues related to
investment policy. In doing so, you will have the advantage of forging an
enhanced level of communication with your clients regarding their expectations
and goals. This open environment of exchange is a critical component of
success. Your clients will better understand what to expect in the advisory
relationship and you will be better prepared to meet their needs.
Additionally, an IPS provided a systematic discipline for decision making so
that unexpected rough periods, which often lead to heightened emotions, do not
get in the way of making consistent, long-term decisions.
Finally, an IPS offers an advisor the peace of mind that comes from knowing
that you have codified all of the goals, steps and procedures related to the
actions that you plan to take on behalf of a client.
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