“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

Overview

• The regulatory environment is an ever-evolving one, but the trends are clearly moving toward greater consumer protection. Broker-dealers and registered firms are subject to two primary obligations that are relevant here: the “suitability” requirement and the “fair dealing” rules. Registered advisory firms must satisfy fiduciary standards of care and client protection that go even further. Well thought-out procedures are critical to satisfying these requirements. Adequate record-keeping can serve to satisfy regulatory auditors, by documenting the appropriate implementation of these procedures.
• In addition to enhancing the trust bond between the client and the advisor/rep thus improving sales opportunities, using an IPS as part of the investment process clearly documents the relevant information about the client’s circumstances, goals, risk tolerance and other requirements. Doing so also helps to establish a transparency between client and advisor, helping to avoid future misunderstandings and establishing a basis for an improved relationship.
• IPS AdvisorPro™ provides a system through which the compliance office can control the verbiage used in IPS documents, can enforce a system of usage among the advisors or reps within the firm, can consistently measure and document each client’s risk tolerance, can guide investment decisions to encourage consistent use of appropriate investment policies (such as asset allocation), and permits the compliance officer a means of supervising the actual IPSs written by the advisors/reps to ensure on-going compliance.

Compliance Requirements

•NASD

o  At minimum, NASD firms have a “suitability” requirement. When a broker recommends that you buy or sell a particular security, that broker must have a reasonable basis for believing that the recommendation is suitable for that client. In making this assessment, your broker must consider your risk tolerance, other security holdings, financial situation (income and net worth), financial needs, and investment objectives. The major securities industry self-regulatory organizations have suitability rules. The NASD’s suitability rule – Rule 2310 – and other NASD materials concerning suitability can be found in the NASD Manual on NASD’s website.
o In addition to “suitability,” NASD firms are subject to “fair dealing” rules whereby sales efforts must be judged on the basis of whether they can be reasonably said to represent fair treatment for the persons to whom the sales efforts are directed.
o The proposed rules from the NASD and the SEC for variable annuities essentially track the ideas and language of antifraud provisions of federal securities laws and rules from other self-regulatory organizations, which obligate a registered representative to recommend only securities which are “suitable” to any particular customer. That “obligation of fair dealing” means that registered representatives must have reasonable bases for believing that their securities recommendations are suitable for and appropriate to certain customers in light of the customers’ financial needs, objectives and circumstances.

o NASD Conduct Rule 2310 — Recommendations to Customers (Suitability)

• In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

• Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:

• the customer’s financial status;
• the customer’s tax status;
• the customer’s investment objectives; and
• such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.

• For purposes of this Rule, the term “non-institutional customer” shall mean a customer that does not qualify as an “institutional account” under Rule 3110(c)(4).

• [Amended May 2, 1990 eff. for accounts opened and recommendations made after Jan. 1, 1991; amended by SR-NASD-95-39 eff. Aug. 20, 1996.]

o IM-2310-2. Fair Dealing with Customers

• Under Rule 2310-2 representatives subject to NASD regulation have an obligation to deal fairly with customers. Implicit in all member and registered representative relationships with customers and others is the fundamental responsibility for fair dealing. Sales efforts must therefore be undertaken only on a basis that can be judged as being within the ethical standards of the Association’s Rules, with particular emphasis on the requirement to deal fairly with the public.

• This does not mean that legitimate sales efforts in the securities business are to be discouraged by requirements which do not take into account the variety of circumstances which can enter into the member-customer relationship. It does mean, however, that sales efforts must be judged on the basis of whether they can be reasonably said to represent fair treatment for the persons to whom the sales efforts are directed, rather than on the argument that they result in profits to customers.

• Specific violations calling for disciplinary action extend to speculative activity, excessive or inappropriate trading, use of fictitious accounts, Transactions in discretionary accounts in excess of or without actual authority from customers, unauthorized transactions, misuse of customer funds, or recommending the purchase of securities or the continuing purchase of securities in amounts which are inconsistent with the reasonable expectation that the customer has the financial ability to meet such a commitment.

• RIA firms

o RIA firms have an even higher standard of care established by fiduciary standards under which the fiduciary owes an obligation to carry out the responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service of the beneficiary’s interest.” The good faith has been interpreted to impose an obligation to act reasonably in order to avoid negligent handling of the beneficiary’s interests as well the duty not to favor anyone else’s interest, including the fiduciary’s, over that of the client.
o Fiduciary liability is not determined by investment performance but rather by whether or not prudent investment practices and standards were followed. The preparation of the Investment Policy Statement is considered one of the most important functions of the fiduciary
o Further, if the advisor should find him/herself in a position of conflicting interests, the advisor must disclose the dual agency (acting for two parties at the same time).
o In ordinary cases the standard of care is whether or not the accused behaved as an ordinary, reasonable prudent person would have behaved under the circumstances. When acting as a professional however, the required standard of care changes. Such individual is required to use any special knowledge he may have obtained through education, training or experience. Therefore, if a person offers professional services to the general public, it is presumed that the person possesses some degree of special skill or knowledge.
o A professional negligence case imposes a certain level of skill and knowledge on the accused whether or not he actually possesses that skill or knowledge. This is a standard of minimum professionally acceptable conduct. Though the standards have not been applied until most recently to financial planners, it would appear that the essence- for them as well as brokers at least- is that the adviser put the clients interest first and acts with the best interest of the client in mind.

• When is an IPS required?

o Investment Policy Statements are required under virtually all investor circumstances with the exception of individual investors.

• ERISA (Employee Retirement Income and Security Act of 1974, as amended) requires an IPS exist for every qualified company retirement plan (e.g. 401k, profit sharing, pension, 403b, etc). “…there must exist a clear investment policy” which suggests the need for a written document, an IPS. In its audits of ERISA plans, the Department of Labor regularly asks to review the IPS as one of its initial requests. The ERISA Section 404(a)(1)(A) and (B) are the pertinent code sections. There is also an interpretive bulletin on the topic. (29 CFR 2509.94-2 – Interpretive bulletin relating to written statements of investment policy, including proxy voting policy or guidelines. (see Section Number: 2509.94-2, “Interpretive bulletin relating to written statements of investment policy, including proxy voting policy or guidelines. Also See: http://www.dol.gov/dol/allcfr/title_29/part_2509/29CFR2509.94-2.htm)

• The 2006 Uniform Prudent Management of Institutional Funds Act (addressing trustee responsibilities of trustees of non-profit monies, primarily foundations and endowments) is substantially similar to the UPIA and requires a written IPS.

• The Uniform Prudent Investor Act (UPIA) governs the investment conduct of private family trusts and serves as the hall mark of subsequent legislation (as well as how the courts now interpret such requirements relating to ERISA) requires a written investment policy for every trust in which trustees manage assets for the benefit of others. It also makes clear that if appropriate investment processes are in place and followed, the trustees will not be held responsible for the results.

• The 1997 Uniform Management Public Employee Retirement Systems Act (addressing trustee responsibilities of government-sponsored qualified employee benefit plans) is substantially similar to the UPIA and requires a written IPS.

• Question: if the regulators require that an IPS be in place for these client types, why would it be any less important for an individual client?

• Plan sponsors are responsible for acting in a prudent and deliberate way, and if they are challenged, they need to have evidence of a prudent decision-making process. If you don’t have a paper trail of what you’ve done and why, you can’t prove that you’ve had a diligent policy in place.

• Similarly for individual clients, being able to document what you’ve done and why can be critical in litigation, with an unhappy client or unhappy heirs. Having a client signature on a document which directs the advisor/rep to act in such a way and with an explanation of why, can be unassailable evidence of no wrong-doing.

Ken Ziesenheim, JD, LLM, CFP® wrote a pertinent article in Investment Advisor magazine, July 2006 in which he made the following statements:

• The IPS process can help build a successful practice because the process can become mechanism for updating and retaining clients, and even attracting new clients.

• The simple premise on which it is based provides an IPS with the flexibility that enables it to be used with individual clients to help make difficult decisions easier. Since accountability and responsibility are defined in the statement, each step becomes a small component of the overall decision-making process.

• There are other benefits to an IPS. It provides a framework for evaluating investment performance and aids in clear communication between advisor and client. Finally, it helps dispel the root causes of dysfunctional client/advisor relationships based on the old sales model of emotional transactional selling. A functional business model does not rely on psychological and emotional rationale to get someone to say yes.

• Using the IPS as a business system ensures that advisors hold rational and logical client discussions and that those clients have acknowledged an investment decision-making process in writing, adding an extra layer of compliance protection to your firm or to you as the advisor. This process ensures that both the advisor and client are in sync and serves as a guideline for managing clients’ assets and expectations. When used properly, the IPS can be a practical tool that embodies the essence of the financial planning process.

Compliance tools built into IPS AdvisorPro™

User Rights

In the online software application IPS AdvisorProTM, when a new user is added to the system under a license, as can be seen below, there are three levels of user rights: General Administrator, Compliance Moderator and General User. For confidentiality reasons, client IPS’s created by one General User cannot be viewed by any other General User, but Administrators and Compliance Moderators have access to all IPS’s created under that license. In addition, any user can be given or not given rights to:

• Create or modify IPS Templates

• Create or modify Asset Allocation Models

• Modify any Asset Allocation Model for a particular client,   without affecting the models themselves.

Those with administrative rights or those general users granted rights are the only ones who can access the following screen, allowing only them to create and modify templates, asset classes, or the asset allocation models.

Template Management:

Within IPS AdvisorProTM a “template” is the basic wording and formatting of the IPS. Responses to the questionnaire and the selection of the Asset Allocation Model flow into the template to create a draft version of the IPS. Upon review, the draft IPS can be further modified so that every part of the document is customized to reflect the unique requirements of each client.

Those with administrative rights can determine which templates are available to users, whether to make it the default template for a particular kind of client (e.g. an individual or a profit sharing plan), how many alternative templates are available to choose from, if any, and whether to keep or delete each template in the list available to all users under that license. Administrators can edit existing templates or create news ones.

As an example, under the “Charitable Trust” type client, the administrator might wish to make slight modifications to the Charitable Trust template so that there are templates for a Remainder Trust, a Lead Trust, an Annuity Trust, and a Remainder Trust with a Net Income Make-up provision. Then, when the user is creating his or her IPS, they’ll have the necessary wording established for them by choosing the appropriate template affiliated with the Charitable Trust client type.

Every part of every IPS AdvisorPro^TM template is available to those with administrative rights to modify. At the start up “Wizard” process, the templates are reviewed and modified to fit the licensee’s processes and procedures. Once in the application, you can do the same thing. As can be seen below, for each paragraph of every templates, the user has full rights to edit, move or remove it. New paragraphs can be inserted above or below any paragraph. The administrator can also find a paragraph in another template within the system under this license and insert it above or below any paragraph. Finally, paragraphs can be “response dependent” which means that based on how any specified question in the questionnaire might be answered, then particular wording would be applied (i.e. if “yes” then use this wording…, but if “no” use that wording….)

Note that under the column “Display Options” a paragraph or section may or may not be designated as editable by others, and it may or may not be required (i.e. must always be present when this IPS template is utilized).

Further, all the verbiage in each paragraph is fully editable. Editing can be done at the template level, where only those with administrative rights can make changes or create new templates. It can also be done IPS by IPS.

In the set up process, the administrator or compliance officer has a high degree of control about what users can edit or not in their IPS’s. As shown below, the editing page is broken into two parts: 1) the editing screen, and 2) the control features for that section of the IPS.

• If, at the bottom, the administrator checks “Yes, this paragraph is required….” Then the paragraph will always appear in the IPS.
• If “Do not allow this paragraph to be edited by general users” is checked, then no user will be able to edit it at any point.
• To save time and effort, these changes can be broadcast to any or all of the IPS templates which contain this section (in the shown example “ERISA Discussion” only three templates contain the relevant section, so the broadcast can only go to those three—pension, “profit sharing” (defined contribution plans), and self-directed 401k plans (also 403b)).

Header/Footer

By clicking in the Navigation Box on “Header/Footer” you can navigate to the following screen where you have control over any of the six possible messages that can be placed in the header or footer (e.g. “Past Performance is no guarantee of future results”) that cannot be modified by general users.

Compliance Officer Supervision

Not only can the compliance officer determine what words are in the IPS and which of them will be editable by general users, the compliance officer has two ways to review every IPS under the IPS AdvisorPro™ license. The compliance officer can access every IPS created under the firm license and review it in its entirety, or more reasonably, the compliance officer has the ability to quickly review summary data on every IPS built under the license.

CPA Wealth Provider is proud to present the sixth annual financial planning awards honoring CPA/financial planning firms, broker/dealers, and financial planning software vendors as well as providing special Awards of Excellence to those who are in the vanguard of leadership in financial planning. The winners are those firms or companies that have taken the lead through innovation, efficiency, initiative, or growth in the financial planning area.

Bill Carlino, editor-in-chief of Accounting Today and editorial director of the Accountants Media Group, Daniel Hood, managing editor of Accounting Today, and Stuart Kahan, executive editor of CPA Wealth Provider judged the 60+ nominations received. The winners, along with honorable mentions, are detailed in these pages.

IPS AdvisorPro®

Miami, Fla.

The company created a Web-based software application that helps advisors build investment policy statements quickly and easily, customized to each firm and unique to each client. It has eight different templates to reflect the different wording required for the individual client, a trust, a foundation or endowment, a charitable trust, an insurance trust, a pension plan, a profit sharing plan, or a self-directed 401(k) plan. The software also provides a way for each user to build their own unique asset allocation models, as many as they like.

http://www.webcpa.com/article.cfm?articleid=30989&pg=ros&page=3

“Software Product of the Year”

This Web-based application, developed by Norm Boone and Linda Lubitz, two highly gifted financial planning professionals,fill a real need for many financial-services firms: It helps them create highly professional, compliant investment policy statements (IPS).

An IPS is a written document that explains the relationship between an investment advisor and a client. An ISP discusses the client’s goals, the investment procedures that will be followed by the advisors, the responsibilities of the client, and the responsibilities of the investment professional. One point should be emphasized: An IPS is not a contract; rather, it is a roadmap that governs the behavior of an investment advisor and the client with regard to one or more investment portfolios. Readers who have never tried to construct an IPS might question the need for an application that can automate this task, but trust me, to do it right, you need IPS Advisor Pro, or something like it. There are a number of reasons for this, but the primary reason is that there is no “one size fits all” IPS. You cannot just create a single IPS and then use it for all of your clients. You will need a different IPS for individuals than you will for a trust, and yet another one for a small retirement plan. Second, there is certain language that you should include in each IPS, or at least certain language that you should consider using. IPS Pro presents all the relevant information to you, and then it lets you decide exactly what to include and what not to include in your documents and templates.

IPS AdvisorPro® comes in two distinct versions: The professional version has an annual license fee of $495; the standard version has an annual license fee of $395. The professional version produces detailed IPSs that typically run 18 to 20 pages. Executive summaries can be generated for internal use. The standard version creates compact IPSs that only run a few pages. Users of either product entitles them to 100 new IPSs per year, and they can maintain an unlimited number of
IPSs. For large firms, institutional pricing is available.

IPS AdvisorPro® is Web-based, so there is no software to install and no upgrading required. All you need is a Web browser and a license to use the product. It is highly customizable, so it is adaptable to a very wide range of needs. If you use IPSs in your practice, or if you want to add them to your practice, take a look at IPS AdvisorPro®.

Download a PDF of the full article here.

Andrew Gluck, CEO Advisor Products Inc.

Except from the article: Linda Lubitz Boone and Norm Boone, authors of IPS AdvisorPro (ipsadvisorpro.com), have made the writing of investment policy statements easy, methodical and more professional.

The foundation of any wealth management engagement is an investment policy statement. It gives voice to all important elements of an investment advisory relationship — goal-setting, asset allocation, management procedures and communication protocols. Left unspoken, such matters can be ticking time bombs that will obliterate client relationships and cripple your business.

The Boones have created a web-based system with templates that can be customized, making it simpler to create and maintain Investment Policy Statements. Anyone managing other people’s money should be writing investment policy statements and making them living documents that clients value and can rely on. This software promotes that practice in the industry, makes it easier to implement and promulgates a good practice.

This article originally appeared in Financial Advisor, November 2007. Used with permission.

Download the full article Eight_Leading_Innovators – Andrew-Gluck.pdf (1.5 mb).

Inside Information ~ Filed Under Practice Management, February 2007

Bob Veres, Publisher, Inside Information

“The definitive tool for creating investment policy statements is back — and a LOT more powerful than the earlier version.”

If we’re moving into a fiduciary world, then it seems likely that, eventually, clients will receive some kind of investment policy statement from their advisors — just like qualified plans do, by law, from THEIR advisors today. And why not? The IPS clarifies the purpose of the portfolio, defines how it will be managed, and (most importantly) it becomes something you can come back to if the client starts asking why you weren’t more heavily weighted in emerging markets funds or REITS following some kind of freakish runup. From a compliance standpoint, it creates a clear record of the investment agreement between advisor and client. Wealthier clients like the idea that their assets are being given the same treatment as large pension plans. And if you do decide to manage a client’s 401(k) plan, you need to have an IPS to define the relationship.

Yes, that’s all well and good, but who has time to sit down and compose a new investment policy statement from scratch for each and every client? Isn’t there some way to automate the process?

Currently, the planning world has only one credible product available for your fiduciary toolkit. Some of you probably have a hazy memory of IPS AdvisorPro as that word processing template that Ibbotson would grudgingly show you if you knew enough to ask about it — a template which gave you enough sample text to customize investment policy statements for clients. That program has moved from Ibbotson back into the hands of its creators — Norm Boone of Mosaic Financial Advisors and Linda Lubitz of Lubitz Financial Group — and has been developed, over the past two years, from a template into a full-fledged web-based program. Apparently the work was not in vain; the program was named Best Software of 2006 by software reviewer and Virtual Office News co-editor Joel Bruckenstein.

To use the program, you first want to create your own personalized templates — which, of course, will be different for different types of clients. After you log onto the web site, the setup wizard lets you decide which paragraphs of the pre-written sections of text should be included in the IPS for any of eight different types of clients. For instance, you can print out the first section, entitled “Investment Policy Discussion,” and decide if you want to include this section, and if so, for which types of clients: individual clients; trusts; charitable trusts; endowments or foundations; life insurance policies; pension plans; profit sharing plans; or self-directed 401(k) plan.

Since this is a generic part of the IPS, you probably want to include it. Then you can go through and decide which paragraphs will be included in each client’s template IPS, check a box, and only those selected sections, and selected paragraphs from those sections, will appear when you call up the template for, say, the individual client or the charitable trust. For the individual, the trust, charitable trust and life insurance policy templates, you might want to leave out the section that discusses ERISA, since none of those client types is covered by the provisions of the ERISA statutes. The discussion of the Uniform Prudent Investment Act would be appropriate for the trusts, charitable trusts, endowments and foundations.

Next, you modify the language of the individual paragraphs so that they are more to your liking. If you already have an IPS that you wrote for a client, or a sample document from a planner you met at a conference, you can cut and paste directly into IPS AdvisorPro’s online template, and generally edit the content as if you were in Microsoft Word. (If you work with a broker-dealer, then the compliance officer will have built-in controls over what you can and cannot modify. And you can put restrictions on what your staff can rewrite, add or delete.)

Once you have the discussion parts of the document customized to your liking, you turn to the heart of the program, which is the recommended investment portfolios. IPS AdvisorPro comes with 29 built-in asset classes, and you get annual updated performance information on each of them. (You can also create your own asset classes and sub-asset classes, but then you have to provide your own historic returns, standard deviation and annual returns data.) You build your template allocation models for each type of client, name the models, specify the percentages and the program automatically calculates the portfolio’s expected risk and return statistics.

Are you stuck with that language, and that asset allocation for every client of this type? No. Once you save the template on IPS AdvisorPro’s web site, you can then pull it up for an individual client, have the client fill out an online questionnaire (as a practical matter, you’ll probably print out the questionnaire, get the information and fill it out online, and then call up the appropriate template and have it populated with the information from the questionnaire–including the name of the client, beneficiaries and other relevant information. While there, you would further customize the IPS to the individual client (creating a customized asset allocation and any customized wording you want to insert), and save it under the client’s name. If you want to increase the cash allocation for this client from 2% to 5%, or raise international exposure, then the system accommodates fully individualized portfolios.

Print it out, look it over, and voila! Download a PDF file to your hard drive and you have your first client’s IPS.

The point, of course, is to get as much done generically as possible, and then provide less labor-intensive tweaks when it comes time to produce the actual documents for your client base. Boone and Lubitz have been creating and thinking about IPSs for about as long as advisors have been managing portfolios, so their language is in danger of becoming the market standard. The program also comes with an online risk tolerance questionnaire (a future upgrade will link IPS AdvisorPro to the FinaMetrica RTQ system); there’s online and 800-number help and online “best practices” advice at various steps along the way, and you can put your company logo on the documents through the server.

Cost? $495 for the first 100 investment policy statements in any 12-month period. If started in January and you do your 101st IPS in, say, August, then you would be billed $495 for the next 100, through the following August. (Yes, there’s a $395 version, but the fact that you only get a summary page makes it not really appropriate for professionals.)

I’ve said before that the planning profession needs to prepare for a fiduciary future, which means getting in the habit of living by more stringent standards of practice. Having every client go through the risk tolerance assessment process (FinaMetrica is the current standard); having an IPS for every client; and having a defensible process for selecting investments (The Center for Fiduciary Studies has created the most credible guidelines) would get your practice one step ahead of any fiduciary guidelines that are likely to come from the regulatory bodies.

Yes, this is all about consumer protection. But I can’t help but enjoy the possible competitive advantage you would be at if the best advisors staked out this high ground in advance.

Joel Bruckenstein, CFP

It has been a long wait, a very long wait, but IPS AdvisorPro® is finally here. This Web-based application that creates investment policy statements was developed by two prominent, highly gifted financial planning professionals, Norm Boone and Linda Lubitz.

Boone is founder and principal of Mosaic Financial Partners in San Francisco. He has been cited by numerous periodicals as one of the best financial planners in the country. Boone has served on the National Board of the Financial Planning Association, the TIAA-CREF Institutional Advisory Board, and the advisory council for Schwab Institutional. His articles have appeared in CCH’s Journal of Retirement Planning, Journal of Financial Planning, and Wealth Manager.

Lubitz is the founder of the Lubitz Group in Miami. She also serves as managing director of Mosaic Financial Partners East Bay Region. Like Boone, she is regularly cited as one of the best financial planners in the country. She has served on the National Board of the Financial Planning Association, and she is an emeritus member of the TIAA-CREF Institute Advisory Board.

Introduction

IPS AdvisorPro® only does one thing, but it does it well: It helps advisors craft unique, professional investment policy statements. If you are not familiar with the investment policy statement (IPS), you should be. An IPS is a written document that explains the relationship between an investment advisor and a client. It should include, among other things, the client’s goals, the investment procedures that will be followed by the advisor, the responsibilities of the client, and the responsibilities of the investment professional. An IPS is not a contract; it is more like a blueprint that will govern the behavior of the investor and the advisor, with regard to one or more investment portfolios.

Two versions of the software are available: Professional has an annual license fee of $495; Standard’s annual license fee is $395. A licensee can create 100 new investment policy statements per year and maintain an unlimited number of them. If you create more than 100 new statements within a year, an additional charge applies. For large firms, institutional pricing is available.

IPS AdvisorPro® is the second iteration of the Boone/Lubitz investment policy statement product. The first one, The Investment Policy Statement Guidebook, was distributed by Ibbotson Associates, which was recently acquired by Morningstar.

The first product was essentially a Microsoft Word template with specialized tools and macros built in. It was effective and fairly priced. I it in my own practice. The only problem was that when Microsoft patched, upgraded, or otherwise altered Word, it sometimes caused problems with the operation of the IPS template. By going to the Web with this latest version, Boone and Lubitz allow users to sidestep the update issue because the developer can take care of any upgrading and patching behind the scenes.

Account Setup Wizard

Before you can use the software, you have to set it up, and a wizard is provided to help you along the way. If you expect to pay your money, push a few buttons, and immediately start cranking out perfect investment policy statements, you will be disappointed. IPS AdvisorPro® will probably require at least a few hours of your time before you create your first investment policy statement for a client, but it is worth it in the long run.

The reason the setup takes so long is that as you work your way through the process, you are actually creating your own IPS templates that you will later use to produce documents for your clients. Let me repeat that: The wizard helps the user to create customized templates, not individual documents. Once the templates are customized, they are used to create the actual documents.

Why can’t the developers do that for you? There are two reasons. The first is that different elements may be required depending on who the client is. For example, if you only deal with individuals and families, you would use one type of IPS. If you are dealing with a 401(k) plan, the requirements and the language of the typical IPS will be different.

The second reason you have to do this yourself is that you will want to customize each template to some extent. Do you want to include every clause that the program suggests? If so, do you like the language of each? When you or your colleagues are creating a document, do you want some clauses to be mandatory and some optional? Do you want to allow colleagues to edit the clauses? These are the kinds of decisions you make when using the account setup wizard.

The setup is a three-step process. First, you edit the templates. Next, identify the asset classes your firm employs. Third, create your asset-allocation models. The software provides default templates, asset classes, and asset-allocation models, but you can modify them or add your own.

Step 1: Templates
Boone and Lubitz have identified eight distinct IPS types: individual/family, family trust, 401(k), profit sharing plan, pension plan, charitable trust, insurance trust, and college endowment fund.

If you only deal with individuals and families, you may only have to create one template; however, if you deal with all of the different client types listed above, or if you want to be ready to deal with them should the opportunity present itself, you may need to create as many as eight IPS templates.

Unless you are in a great rush, I advised you to select all types, because you can only run this setup wizard once. There is a way to make adjustments later, but it is not as convenient as using the wizard. In addition, if a section or clause is common to all of the templates, you can enter it once in the wizard, and it will be applied to all eight template documents.

The wizard also allows you to insert placeholders. Let’s say that I want to insert a field for my firm’s name on the cover page of the insurance template. I open that template editor, place the cursor where I want the company name to go, select Insert Placeholder, and check the box next to COMPANYNAME (there is a description next to each placeholder that explains what it is in simple English), and then click Okay. The placeholder appears in the template.

When working within the page editor, there are two extremely useful hot links. The first is a Revert to Original Text link. Once I saw this link, I felt empowered to experiment because I knew that any dopey mistakes I made could be eradicated in a heartbeat. The other useful hotlink is Show Original IPS AdvisorPro® Provided Text. When you click here, an additional window opens that displays what the original page looked like before I started messing it up. I can use it as a guide to further modify my work, or I can cut and paste from the original into my modified version.

Step 2: Asset Classes
Once the templates have been edited, it is time to move on to the asset classes. If you are comfortable limiting yourself to the roughly 30 asset classes listed here, or a subset of these, and approve of their statistics (returns and standard deviation), you can move on. If not, you can add your own asset classes or modify the statistics, but if you do, the information will no longer be updated automatically by the developers. Updating becomes your responsibility.

Step 3: Asset Allocation
Next, you can create model asset allocations. You can restrict yourself to the six default asset mixes, or you can create as many new ones as you desire. If you create new models, and they include custom asset classes, the advisor is responsible for supplying the risk/return statistics for the resulting portfolios.

Once you have entered all of the information, the wizard takes you to the screens that allow you to create a new IPS. Creating an IPS is as easy as can be. A questionnaire takes you through the process. If you do not complete the work in one sitting, you can save the IPS and come back to it later for completion. You can then print a copy for the client to sign.

What’s Hot

I’ve been eagerly awaiting the release of IPS AdvisorPro® piqued for a number of reasons. The first is that I know many advisors who have used previous versions of this product, and they generally held it in high regard. Most have been waiting to see if this long-awaited update meets expectations. For the most part, it does.

The program was created by two veteran advisors who are widely acknowledged as experts in this field. The design is well thought out. User screens and output are clear and professional looking. Once the set up has been completed, IPS AdvisorPro® is quick and easy to use.

The program is highly customizable. Senior members of the firm can customize the eight templates. In addition, they can control how much, or how little, others in the firm will be allowed to modify the templates for individual clients. This ensures that all investment policy statements created by a firm are consistent, and that all advisors follow policies that are in line with the firm’s philosophy and constraints.

Since IPS AdvisorPro® is a Web-based product, there are no upgrades to install, since the provider does it all for you. While you can download and save a PDF of all documents you create, all of the data reside on the secure IPS AdvisorPro® servers, providing the licensee with a redundant, off-site repository of all pertinent client information.

What’s Not

Almost all of the hassles you are likely to encounter will be during the setup process. If you can make it through there, you are home free.

The setup is time consuming, and it can become cumbersome. The developers recommend that you first print the 24-page “Guide to Getting Through the IPS AdvisorPro® Account Setup Wizard.” They also suggest that you print a copy of each of the eight default IPS templates, most of which exceed 20 pages. The idea is that you can annotate the guide and mark up the printed versions of the templates, which can then be used as a workbook for the setup wizard.

To the extent that you can live with the layout, language, asset classes, and model portfolios provided, your task will be that much easier. Changing a phrase, removing a paragraph, and other simple edits are not beyond the ability or the patience of the average user, but if you feel the need to do extensive editing of the templates, you may become frustrated.

The same goes for asset classes and model portfolios. If you use the model portfolios provided, setup will be easy. Even if you construct your own models, odds are you will still be highly satisfied, provided you don’t stray from the default asset classes. If you create many customized portfolios using many customized asset classes, you lose the benefit of outsourcing the maintenance of the risk/return statistics. This is not a fatal flaw, but it does add one more regular task to your to-do list. I’d avoid it if possible.

Compliance Conundrum?

While a detailed investment policy statement can be an excellent practice management and client retention tool, using one is not without risks. To assess those risks, I talked to a couple of the nation’s top compliance gurus, Thomas D. Giachetti, chair of the Securities Compliance & Arbitration group at Stark & Stark, and Barry P. Schwartz, founder and partner at Advisor Compliance Associates.

Schwartz says, “The investment policy statement should be a guiding document, but some advisors mistakenly use it to memorialize their specific recommendations. This can be problematic because specific recommendations change over time.” If advisors are not careful, they can find themselves in a Catch-22 situation. “Best practices dictate that your firm use an investment policy statement,” Schwartz says. “The more specific it is, however, the more often it must be referenced and updated. In addition, if you customize an IPS for each client, regulators will want be know if you have the systems in place to carry out your mandate.”

Giachetti concurs: “Investment policy statements should be short and sweet. When it comes to IPS, I fall into the KISS (keep it simple stupid) camp.” Giachetti added that he is wary of software solutions because he is not a believer in “one size fits all.” When I explained that IPS AdvisorPro® is highly customizable, he endorsed that flexibility, but nevertheless warned that a professional should be the one doing the customizing. “There are many critical elements to an IPS,” Giachetti says. “These include appropriate disclosure language and appropriate client acknowledgements. It is essential that the document put the onus on the client to inform the advisor of any changes in client circumstances.” Giachetti further recommends that advisors follow up with a letter to clients each year, reminding them of their responsibility to inform the advisor of any changes in their situation.

What do these compliance insights mean to advisors who use this product? First, extraordinary care must be used in creating the templates. Second, a compliance expert should review any IPS before it is used with clients. Third, the job doesn’t end with the creation of an IPS. It must be referenced and maintained regularly. Four, the more detailed the statements are with regard to investment process, the more technology may be required to carry out the mandates contained within the IPS documents.

Should You Buy?

The answer is a qualified “yes.” Best practices include the use of an IPS. There are many programs out there that claim to produce one, but none targeted at the advisor market is as comprehensive as this one. IPS AdvisorPro® is not just comprehensive; it is well designed, highly customizable, easy to use, and fairly priced.

The only reason I qualify my recommendation is that I fear some advisors will misuse it. If they just blindly follow all of the default language, if they fail to get the proper guidance when preparing the templates, if they fail to invest the necessary time at the beginning, there is a good chance that there will be problems down the road. If they do not review and update the IPS regularly, they are better off doing nothing. Finally, if they create a custom IPS for each client, but do not have the systems in place to follow through on the IPS, they are setting themselves up for failure

If used properly, IPS AdvisorPro® can be a wonderful tool. Just make sure you give it the time and the respect it deserves.

Joel Bruckenstein, CFP, is co-author of the book Virtual Office Tools for the High-Margin Practice.

Copyright BLIPS Partners, LLC. All Rights Reserved

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.]

PRACTICE MANAGEMENT TOOLS

For general office assessment, business coaching and helping you become more efficient, there are a few resources that advisers will swear by. Take Mark Tibergien and Rebecca Pomering at Moss Adams in Seattle (www.mossadams.com), who have become a huge resource for planning firms looking for advice on staffing, transitioning firms to inside or outside buyers and benchmarking their practices against others like them.

Angela Herbers at Financial Advisor Resource (www.financialadvisorresource.com) will work as your virtual CEO. Her website offers tools designed to help you master the business of financial planning. She and Stephanie Bogan at DP Group (www.dpgroup.net) can help you incorporate younger advisers into the office and create career tracks for them. Bogan offers a variety of practice management consulting services and online tutorials.

Advisers looking for ways to incorporate the systematization concepts of the E-Myth books will find the husband and wife consulting team of Paul and Leslie Strebel (www.strebelcpa.com) helpful. They offer E-Myth consulting and also perspectives on how they, as planners, have used these ideas in their practices.

Another, more general resource that gives you a lot of potential outsource partners (virtual case writers and office assistants, etc.), plus case studies and news about the growth of this support ecology, is Virtual Office News, a newsletter/website service published by magazine columnists and consultants Dave Drucker and Joel Bruckenstein (www.virtualofficenews.com).

Bruckenstein (www.joelbruckenstein.com) provides technology consulting on any subject, from hardware to buy and where to get the best prices to which software (planning, paperless office, client relationship management, etc.) is the best fit for you.

If you’d like to explore an efficient way to go paperless and greatly improve your ability to keep track of client records, then you should at least talk with Jo and Kevin Day at Trumpet Inc. (www.trumpetinc.com). Their tools can integrate the various components of a paperless office into one seamless system.

I think the most important practice management software is the client relationship management (CRM) tool. In our space, there are two financial planning company-specific programs that do a lot more than just organize client files; they organize your office systems and procedures in a customizable way, and have also evolved into indispensable compliance tools. Junxure-i (www.junxurei.com) may be the strongest resource for managing your office, but I recommend attending some of the firm’s practice management seminars to get the most out of the program’s capabilities.

The other planning firm-specific CRM program is Protracker (www.protracker.com), whose website supplies a handy compliance manual and business continuity plan template. These let you create or upgrade these documents by filling in the blanks, at a fraction of the cost of hiring an outside attorney.

There’s also an inexpensive alternative to hiring a law firm or consultant to prepare you for the next SEC audit or NASD inspection. ComplianceMax (www.compliancemax.com) offers a virtual compliance department that consists of self-guided monthly modules. You’re prompted to spend a few minutes staying on top of a different, specific area each month. The website also offers model policies and procedures and an online business continuity plan. (For an extra fee, the company provides telephone consultations and mock audits.)
For marketing and branding, advisers give great reviews to Advisor Products (www.advisorproducts.com). You can use this new “marketing in a box” system to develop professional-looking websites; create modular, customized client newsletters and website content; and generally brand materials.

If you don’t want to reinvent the wheel, you can adopt a complete and proven planning system created by advisers that includes documents, systems and procedures from one of two sources. Both include coaching and membership in an ongoing support group of like-minded planners as part of the package. The Alliance of Cambridge Advisors (www.cambridgeadvisors.com) is the more traditional site; it includes fee schedules, planning tools and anything else you would need to convert to a fee-only practice or ramp up in financial planning. The other program is the Garrett Planning Network (www.garrettplanningnetwork.com), which has a per-visit pricing model that is ideal for less wealthy clients, who can then be served profitably.

CLIENT SERVICES RESOURCES

The biggest trend in client service is customizing the financial planning experience to a client’s personal life and goals–an activity that we have learned to call “life planning.” We now have a variety of systematized ways to offer this customization. Mitch Anthony has become a popular speaker at planning conferences, and he is one of the pioneers in this space, with a turnkey life planning package of tools and processes organized under the name “Financial Life Planning” (www.mitchanthony.com). Money Quotient (www.moneyquotient.com) also offers a life planning tool kit. I’ve run into zealous fans of both programs.

The godfather of the whole life planning movement is George Kinder. His Kinder Institute (www.kinderinstitute.com) offers training programs in how to offer life planning services and the now-famous “Seven Stages of Money Maturity” workshops.

For more specialized advisers, we now have a variety of planning subcategories. I recently attended the national conference for the International Association of Advisors in Philanthropy (www.advisorsinphilanthropy.org), which has become the resource organization for planners who want to do planned giving work with clients.

If you want to work with qualified plans and offer audits that determine how well the trustees are meeting their fiduciary obligations, then at least look into the training programs at the Center for Fiduciary Studies (www.fi360.com), which now provides credentialing courses and a variety of online tools. It’s also great resource for advisers who want to learn to act as fiduciaries for their clients.

If you aspire to hew to fiduciary standards, every client should have his or her own investment policy statement, just as qualified plans do. But who has time to write a 30-page document from scratch for each client? A new tool called IPS AdvisorPro (www.ipsadvisorpro.com) is an online template that lets you create a customized IPS in minutes–at a surprisingly affordable price.

Speaking of fiduciary, if you want to get a good fix on your clients’ investment risk tolerance, there’s only one tool on the market that meets the standards of psychometrics and the fine art of asking questions so that clients can grasp them in a meaningful way. It’s called FinaMetrica (www.risk-profiling.com). The whole system is web-based, which makes it easy for clients to run through a brief online questionnaire; you get the results, the raw data and a comparison of this client with several others along the spectrum from “swing for the fences” to “hide the money under the mattress.”

If you’re in that small niche of advisers interested in fee-only insurance, or are offering insurance consulting to clients without charging commissions (either via no-load products or delegating the application process to commission-based professionals), then check out the Fee Planners Network (www.feeplannersnetwork.com). The free newsletter alone is worth the visit. If you’re not into that much detail, many fee-only advisers outsource insurance work to RISC Consulting and John Ryan, who specializes in life, disability and LTC contracts (www.ryan-insurance.net).

In IRA consulting, there are more great sources. One of the best is Ed Slott, who publishes a newsletter, IRA Advisor (www.irahelp.com), and writes a column for this magazine. Also check out Natalie Choate’s site (www.ataxplan.com). And New York attorney Seymour Goldberg provides his own IRA data resources and general trust tax accounting and distribution rules (www.goldbergreports.com).

In creating this directory, I know I’ll probably kick myself because I left something or someone out. So I invite you to do the kicking instead. If you know of a great tool or service, email me at the address below. Meanwhile, I hope that you’ll participate in the new support ecology and become more efficient, productive and profitable.

Bob Veres publishes the Inside Information service (www.bobveres.com) for financial planners. He can be reached directly at bobveres@yahoo.com.