An IPS Pro: Norman Boone’s expertise on investment policy statements powers his software product-and his advisory practice.
February 4, 2010
February 1, 2010
Norman Boone has an impeccable resume. Founder and president of Bay Area-based Mosaic Financial Partners, Boone earned his CFP certification in 1984 after an undergraduate degree from Stanford and an MBA from Harvard. He served in the first class of directors elected to the national board of the FPA. And he has been included as one of America’s Best Financial Advisors by the Worth/Robb Report every year since the list’s inception in 1994. Read more
How Using an Investment Policy Statement Can Help Take You to the Next Level
August 23, 2009
by Norman M. Boone, MBA, CFP® and Linda S. Lubitz, CFP® (published by AICPA)
Download a PDF version of this article here.
The Investment Policy Statement: Providing the Bridge Between Compliance and a Satisfied Client
May 15, 2009
By Norman M. Boone, MBA, CFP ® and Linda Lubitz Boone, CFP®
An investment policy statement helps an advisor communicate to relevant parties the procedures and investment philosophy of that advisor, and it documents the agreements between the advisor and the client about how that client’s money will be managed. The statement should provide the guidelines for investment decisions and set forth the responsibilities of each party.
When our first article about investment policy statements was published in the Journal of Financial Planning in July 1992, very few advisors were using these statements in their practices. Today, the landscape has significantly changed: It is now considered a best practice to provide investment policy statements to all clients, whether or not it is legally directed. Although some compliance officers may disagree, we believe that a properly written investment policy statement can be critical in minimizing the legal liability of your fiduciary clients (qualified plan trustees and trustees of irrevocable trusts, endowments, foundations and charitable trusts) and for that matter, all your clients. Read more
Compliance and the IPS
April 21, 2009
Issues and Tools in Using IPS AdvisorPro®
“If there were only one tool every financial advisor must have to run their business, it would be IPS AdvisorPro™. I feel so strongly about Lubitz and Boone’s book and software that I recommend it to every one of our clients without fail. If you want to keep your clients and keep your clients happy, this is the right tool for you.”
Katherine Vessenes, JD, CFP® President of Vestment Advisors, nationally known authority on investment advisor and broker-dealer compliance issues and author of “Protecting Your Practice” and “Building Your Multimillion Dollar Practice.” Katherine, VestmentAdvisors.com Read more
A Review of Difficult Investment Policy Issues
April 15, 2009
By Norman M. Boone, CFP®, and Linda S. Lubitz, CFP®. Published in FPA Journal, May 2003.
This article looks at the many challenging issues the advisor needs to address in developing an investment policy statement for a client. There is no one right way to look at any of these issues, so the authors seek to raise questions rather than provide the “right answer.” The issues discussed that the authors believe should be included in an IPS are investor goals, client cash flow needs, what to do when a client needs or desires inappropriate rates of return, identifying the investors’ time horizon and risk tolerance, handling concentrated or low-basis positions, tax considerations, portfolio optimization, outside investment accounts, and rebalancing and monitoring activities. Read more
Stay Focused With an Investment Policy Statement
April 15, 2009
By Nicole O. Coulter, Horsesmouth Senior Editor. Published Aug. 18, 2006.
Crafting a governing document helps you and your clients concentrate on long-term objectives. And new technology makes it easier than ever to develop comprehensive and customized investment policies.
Imagine a plainly written document that helps you and your clients remember long-range objectives as well as potential losses they agreed to tolerate in the short run. Envision clients signing off on that form each year while pledging to notify you of any life changes that affect their portfolio goals.
Sound like a dream? Well, you can make the dream come true with an investment policy statement, or IPS.
The value of an Investment Policy Statement
Investment policy statements serve as valuable road maps in client relationships. Traditionally, institutional money managers used investment policy statements with qualified retirement plans or the trust accounts of the super-rich. But more retail advisors these days see the value in creating policy statements for most, if not all, their clients.
A good IPS accomplishes the following:
- Clarifies investment performance expectations
- Documents client financial objectives and risk tolerance
- Describes selected asset classes and allocations
- Details which benchmarks will be used to evaluate performance
While you probably talk over these issues with clients, having a written document serves as an insurance policy should clients become disaffected. The signed policy reminds clients of the original goals you discussed with them when they hired you , and it documents that you followed the agreed-on game plan. It keeps everybody on the same page.
“By using and following the IPS, we are better able to defend our advice and value to all our clients,” explains Delmar Gillette, a registered investment advisor in Newport News. Va. “It puts in plain English what the client wants to accomplish and the risks they are willing to take. It also provides a measurable standard by which we can reasonably be evaluated.”
Focus on potential risk
One key aspect of an IPS is to remind clients of potential losses they agreed to accept, This is especially valuable in a down market. For instance, an investment policy statement might include something like this:
- Client X could accept losing 15% in any single year. Over a five-year period , he could tolerably lose 3% annualized.
When the market falters to the tune of, say , 6% in any given year, an advisor can point back to the risk range outlined in the investment policy statement, as well as to the benchmarks chosen to help put the client’s investment performance into perspective.
Who needs an investment policy statement?
Traditionally, financial advisors have used the IPS only with institutional clients such as qualified retirement plans or endowments. Retirement plans, subject to the provisions of ERISA, must be managed according to a consistent policy. Endowment accounts also typically involve fiduciary responsibility and discretionary money management, both of which require a formal document that outlines the investment objectives and process.
But the inherent value of an IPS makes it a useful tool for all clients, not just those with legal obligations.
“We think an IPS ought to be used anytime an advisor has money to manage for a client,” says Norm Boone, president of Mosaic Financial Partners in San Francisco and co-creator the new IPS AdvisorPro software, which helps advisors customize comprehensive investment policies for eight different client types. “If it’s right for big clients, why not smaller ones?”
Boone contends that documenting expectations up front leads to longer relationships with all clients and possibly more referrals. “If they know what’s coming, they’ll stick with you in bad times because they knew it was going to be part of the experience. If they stick with you, you’re not going to have to acquire as many new clients. And you’re more likely to receive referrals from them.”
Bringing the IPS to the masses
Bruce Hagan, an independent planner in Tallahassee, Fla., has faithfully employed an IPS for years with most of his investment accounts, utilizing an old Ibbotson IPS builder, a product now rolled into a web based suite. “I create an IPS wherever there’s a need for a financial plan or asset allocation,” Hagan explains.
However, he says, there are a few occasions where he wouldn’t use one. “If I have a small business setting up a SIMPLE IRA account for five employees and the employees are contributing $50 to $100 per month, I’m not going to go through the effort of creating an IPS for each of them. Similarly, I wouldn’t use an IPS with a retiree who just wants a CD or a bond. But other than that, I use it extensively.”
Here are some thoughts from other advisors who are considering incorporating IPSs in their process or have just begun to use them routinely:
- “I see the need to write one for every relationship as I move my practice forward,” says Joe Bustin, an independent wealth manager in Norwalk, Iowa.
- “I currently do not use an IPS and I need to find a way to implement it and make it a part of my system of doing things.” explains financial planner Tim Reik in Altamonte Springs, Fla.
- “I have been searching for a way to effectively and accurately prepare IPSs for my clients for several years now,” reports Susan Kendall, an independent planner in Pacific Grove, Calif.
- Kendall. She recently subscribed to the IPS AdvisorPro service, which she describes as easy to use. “We are in the process of updating and preparing IPSs for all our fee-based clients. The IPS
- AdvisorPro software allows us to customize the IPS easily to best serve all of our clients. I believe that an IPS sets us apart as professionals and offers us a competitive advantage.”
- Becky Gaylor, founder of Active Money Management in Phoenix, also recently began a new IPS system: “We are just beginning to use some wonderful software (BetaVest) that helps to create the IP for each client while educating them and continually monitoring ,” she explains. ”This is especially helpful for client reviews. It’s a process called CASE management: Cashflow, Asset Allocation, Sequence of Valuations, and Expectation Management.”
Creating your own IPS
Customization is the hallmark of investment policy statements. No two are alike, nor must they be dozens of pages long. In fact, just one to five pages-especially for smaller clients-will generally suffice. Whether you’re using a software program that allows you to populate your document from a questionnaire, or simply customizing a Word document you’ve created , an IPS generally includes the following information:
- Type of account
- Current assets
- Investment time horizon
- Return objective and expectations
- Risk tolerance and loss limit
- Asset allocation
- Allocation variance allowance
- Evaluation benchmarks
- Investment objectives
- Investment philosophy
- Preferences and constra ints
- Investment selection criteria
- Monitoring procedures
Senior Editor Nicole Coulter specializes in helping financial advisors manage their businesses more effectively. She has previously written about practice management issues or publications such as Registered Representative and Bank Investment Representative. Copyright Horsesmouth 2006. http://www.horsesmouth.com/
Investment Policy Statements Keep Clients Thinking Rationally
April 15, 2009
Norm Boone, MBA, CFP®
By Norman M. Boone, MBA, CFP. Published June 1, 2007 © Horsesmouth, LLC
An investment policy statement not only tells clients what to expect from you, it helps them make their investment decisions rationally instead of emotionally. And that can save everyone a lot of headaches.
Advisors who manage money for their clients are discovering the value and importance of using an investment policy statement (IPS) as a key part of their investment process. Clients appreciate the opportunity to better understand what to expect from their advisor. That clarity helps to build a much higher level of trust and respect, which can, in turn, lead to growing accounts and more referrals.
What is an IPS and why is it important?
An investment policy statement (IPS) is a written document that provides a record of the agreements reached between client and advisor with regard to the policies and procedures to be followed by the advisor in managing the client’s money. An IPS is legally required for all ERISA plans and for virtually all trust and institutional clients. Using an IPS with individual clients has so many benefits that it is now considered a best practice for advisors.
I have been using IPSs at my firm since the late 1980s and have been championing them in the industry for over 15 years with my partner Linda S. Lubitz, CFP, president of the Lubitz Financial Group in Miami.
The IPS question we hear most often from advisors is “How do I do it?” Following is our suggested approach to investment management in a nutshell—what both of us have been doing in our own investment advisory practices for many years.
Significant disclosure and communication
We believe that the creation and confirmation of the IPS is the single most important step in the investment process. We conceptualize the investment process as a series of six steps, all centered on the development and continued use of the IPS, as shown in the figure below.
6 Steps of the Investment Process
Let’s look closer at each of these steps:
1. Initial discovery. First, we learn about the client’s circumstances, goals, income needs, restrictions, current holdings, risk tolerance, and so forth. This step takes not only good questioning but excellent listening.
2. Discussion and agreement. Second, we talk with the client about the various issues and choices that must be agreed to before we can appropriately manage the client’s money. This gives us an opportunity to educate, set appropriate expectations, and find agreement on critical issues such as:
- the degree of client involvement
- asset allocations
- investment instruments
- our approach to taxes
- dollar cost averaging
- …and a host of other implementation concerns
3. Creating the IPS. Once we have agreement on the full list of issues (systematized through a questionnaire to ensure we don’t miss anything), we record the agreements in the document known as an IPS. We and the client both sign the document, acknowledging and affirming our agreements.
4. Investment implementation. It is important to note that we don’t do any trades in the client’s accounts until we have an IPS in place. Once the IPS has been approved by all parties, we are free to undertake initial and ongoing trades according to the roadmap it provides.
5. Ongoing communication. Regular meetings, phone calls, e-mails, and periodic reports are all carried out as called for in the IPS.
6. Monitor and adjust. Portfolios are not static. So, as laid out in the IPS, we monitor the portfolio for poor performers, rebalancing opportunities, tax loss harvesting, and other ways to keep the portfolio in line with the objectives set forth in the IPS.
Changing circumstances
As we all know, clients and their needs change over time. It’s important to periodically go back to step one to make sure you are addressing the client’s current needs and wishes rather than ones that are out of date. Every year or two, you and your clients should review their IPS to make sure that your clients still agree with everything in it.
This review offers an opportunity to remind clients about all the things you do to make sure the portfolio continues to serve their needs. It also helps remind them of your philosophy and approach. This serves to prevent surprises and disappointments. If you do what a client expects you to do, you are more likely to have a happy client.
Advisors who use this process find that taking a little more time with clients up front helps cement the relationship and generate opportunities for more and better business. Clients appreciate the extra effort and the greater clarity that comes with the IPS development process.
Renewing understandings
Another important benefit of an IPS is that clients have a better understanding of our approach. They understand we have a reason for each of the things we do with their money. As a result, they are more confident in our abilities and are much more willing to release control to us.
At each of our respective firms, Mosaic Financial Partners and the Lubitz Financial Group, we have full discretion for our clients’ accounts. This can only happen if clients are sufficiently comfortable with our abilities and approach. Working through the IPS process in partnership with clients forms the basis for that confidence. And it makes our lives much easier.
Adjusting to the market
If clients have confidence in us, they won’t be calling to ask us to move their accounts to safer investments when the market hits a rough period. The IPS establishes investment guidelines and a framework for long-term investment thinking. Simply reminding clients of what they agreed to in the IPS is often enough to calm their nerves.
If they persist, then a change in the IPS becomes necessary in order to implement the client’s changed instructions. Often, when we indicate the need to fundamentally change the IPS, clients realize the seriousness of their request. The IPS serves clients well by providing a framework for helping them think rationally about investment decisions, enabling them to get through difficult market periods. Doing so obviously makes the advisor’s life easier as well.
Getting started
If you want to start using IPSs, there are several good places to start, including our website, IPS AdvisorPro, and book Creating an Investment Policy Statement. Additional advisor-recommended books and online resources include:
- How to Write an Investment Policy Statement, by Jack L. Gardner
- Tools and Templates for Your Practice, by Deena B. Katz (includes sample one-page IPS and a PowerPoint IPS)
- BetaVest Investment Planning Solutions
And here are several sample IPS statements you can use as models:
- Individual Investment Policy Statement
- IPS for Retirement Plan
- IPS for Foundation
Norman M. Boone, MBA, CFP® and Linda S. Lubitz, CFP® are the co-founders of IPS AdvisorPro®, an online investment policy solution for the professional wealth manager. Boone is also the president of the San Francisco wealth management firm Mosaic Financial Partners, Inc. Lubitz’s independent advisory firm The Lubitz Financial Group is in Miami, Florida. You can reach them via email at Norm@IPSAdvisorPro.com or Linda@IPSAdvisorPro.com.
Financial Services Institute | AUDIO | Norm Boone and Linda Lubitz Boone
April 15, 2009
Wednesday, January 7, 2009
4:00pm ET / 1:00pm PT
In these challenging and unprecedented times in the markets, many investors have a tendency to become nervous and raise questions about their portfolios and the health of their investments, creating additional needs for their financial advisor to address. Join us for an engaging and interactive web conference with Norm and Linda Boone, experienced financial advisors and architects of IPS AdvisorPro, the industry’s leading investment policy statement platform where they’ll share their approach to client management, ways to effectively use IPS’s and, decades of wealth management expertise.
Listen to the MP3 at WebLinkLive.com
Making the Investment Policy Statement Part of Your Investment Process
April 13, 2009
Norm Boone, MBA, CFP®
By Norm Boone, Published by Legent Clearing 2007.
More and more advisors who manage money for their clients are discovering the value and the importance of using an Investment Policy Statement as a key part of their investment process. They arc finding that clients appreciate the opportunity to better understand what to expect from their advisor. That clarity helps to build a much higher level of trust and respect which can, in turn, lead to growing accounts and more referrals.
An Investment Policy Statement (”IPS”) is a written document that provides a record of the agreements reached between the client and the advisor with regards to the policies and procedures to be followed by the advisor in managing the client’s money. Such a document is legally required for all ERISA plans and for virtually all trust and institutional clients. Using an IPS with individual clients has so many benefits that it is considered a “best practice” for advisors. Read more
On the Same Page
April 9, 2009
By Ingrid Case, First published January 1, 2009.
Investment policy statements (IPSs), viewed as protective by some advisors and potentially hazardous by others, are getting more attention in this transformed market.
An IPS is a document that explicitly outlines the goals and philosophy of investing for a given client, setting general preferences. Users regard IPSs as an effective tool for keeping planners and clients on the same page, guiding the planner’s efforts and keeping the client’s expectations reasonable and realistic. Now that the markets are in turmoil, there’s more focus on the rationale underlying IPSs.
Many planners use IPSs with certain of their clients, particularly institutional, high-net-worth or highly argumentative clients. Few, however, use IPSs with the majority of their clients, especially when times are good. Read more
Getting Comfortable With Change
April 7, 2009
Norm Boone, MBA, CFP®
As an active proponent of investment policy statements, I have frequent opportunities to speak with advisors about the how and why of using this tool in their practice. While most recognize an IPS’s potential benefits, one question is often raised. “Wouldn’t it be risky to start using IPSs? My clients would wonder why, all of a sudden, I’m using this tool when I’d never mentioned it before. They might question my motivation and lose confidence in me.”
It’s true that change is often challenging for clients. But the fact is that change is constant. In our business, the market fluctuates and there are constant changes in the client’s situation. We also have internal changes in our firms that must be communicated to clients. Still, far too many advisors use their clients as an excuse for not making needed changes. Here are some communication tips for introducing change to your clients: Read more
Adviser Services 411
April 7, 2009
Bob Veres, Publisher, Inside Information
It has taken 30 years, but the financial planning profession has finally evolved a rich and diverse ecology of support services that address virtually every practice need. The trouble is, there isn’t any handy telephone book to help you find what you’re looking for.
Until this column, that is. My goal is to provide names and web (or email) addresses for some of the very best services, consultants and information resources that I’ve come across in my 23-plus years of roaming around the industry. Whatever you need, chances are it’s out there, and you’ll be grateful when you find it. [Ed's note: Some of these services and contacts will be available through Financial Planning's AdvisorMax.com, launching in November. It will be a comprehensive source of information, research and practice management tools for planners.] Read more
Put It in Writing – Practice Management
April 7, 2009
By Norman Boone and Linda Lubitz Boone. First published November 1, 2008.
A PDF version of this article can be downloaded here (1 mb).
Bank advisors have lots of reasons to avoid writing investment policy statements (IPS). They’ll say:
- “It takes too much time to go over all the issues with my client and then write an IPS, and get my client to read and approve it.”
- “Clients expect me to start managing their money right away, so it doesn’t make sense for me to delay just to write an IPS.”
- “I’m afraid that by writing an IPS, I’m just giving my client the tools with which to sue me. In fact, my attorney tells me not to put anything in writing if I can avoid it.”
- “My broker-dealer doesn’t allow me to write an IPS.”
- “I like the idea of an IPS, but I’m not sure how to explain the process to my clients or what should go into it.”
This article will address these concerns with an eye toward helping you successfully adopt IPSs as part of what is increasingly considered a “best practice” in the investment world. In these frightening markets it might be particularly helpful to have such a document to refer to. Read more
7 Rules for New (and Experienced) Advisors by Katherine Vessenes, JD, CFP®, RFC®
March 15, 2009
Use an IPS. An Investment Policy Statement is one of the best tools you can use to litigation-proof your business. My favorite treatise on the subject was written by Norm Boone and Linda Lubitz, Creating an Investment Policy Statement. It is an online service you can use to create an IPS for every client. www.IPSaAdvisorPro.com (An IARFC member benefit).
A PDF of the full article can be downloaded here.
