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In short, every investor needs and investment policy. And in
certain fiduciary circumstances, it is mandated by law.
An investment policy is required anytime a person or group is making investment
decisions for the benefit of others, regardless of whether the decision-makers
also have a direct personal interest in the assets.
Here are a few examples of investment situations which require an Investment
Policy Statement:
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When the investments are subject to ERISA
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When the investments are subject to a Taft-Hartley plan
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When the investments are held in some kind of trust for the benefit, now or in
the future, of any person or any entity other than the trustees
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When the investments are owned by a foundation or endowment
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When the funds are in an estate and the executor(s) is making investment
decisions
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When investment decisions need to be made and there are one or more persons
acting in a fiduciary capacity, especially in those states that have passed the
Uniform Prudent Investor Act.
It is very important that once an Investment Policy Statement is written, it is
followed carefully. Thus, an IPS needs to be drafted professionally and with
care. If you do not adhere to the policies you create for a client, you have
not fulfilled your fiduciary duty.
Finally, anyone affiliated with a broker-dealer should talk with his or her
Compliance Department about what they require with regards to Investment Policy
Statements
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