An Investment Policy Statement (IPS) is a written game plan between a client and their investment manager, and it defines how an investment portfolio will be managed. An IPS typically includes details about investment objectives, potential strategies, risk tolerance, asset allocation and time horizon. The IPS also serves to describe the responsibilities between the client and the investment manager. Ultimately, a well-written IPS ensures that there’s a plan that allows for consistent, informed decision-making that serves as a roadmap to your investment success.
What’s surprising, according to a Russell Investments survey, is that 60% of investors don’t have an IPS in place with their advisor. Investors are often handing over their life savings without a specific documented roadmap that outlines the agreed-upon strategies for their portfolio. We see the IPS as a critical part of portfolio development, as it also gives us a tool to monitor and measure its success. It’s both a blueprint and a report card.
Developing a disciplined investment plan for our clients is at the heart of our process. During our initial consultation and planning meeting, we determine your short and long term financial planning goals. From there, we develop a comprehensive plan that puts your goals at the forefront of everything we do. Here are some of the questions we would review with you as part of developing an IPS for you:
- What are your overall financial goals?
- What is your time horizon for funding this goal?
- How much will you need to fund the goal each year?
- What is most important to you as an investor?
- What is your comfort level for risk?
- What are your allowable asset classes (stocks, bonds, etc.)?
- Do you have a target asset allocation mix?
- How much of a loss are you comfortable with over various time frames (1 month, 1 year, 5 years)?
- Do you have any special tax considerations?
- How much liquidity do you require?
Portfolio Monitoring and Review
- What is the expected rate of return for the portfolio?
- Are there any upcoming withdrawal and deposit expectations?
- How would you measure success of your portfolio
- What are the benchmarks for the portfolio (DJIA, S&P 500, Russell 2000, MSCI EAFE, etc.)?
We believe that developing, sticking to and reporting on an Investment Policy Statement ensures that your investment strategy is clearly outlined and revolves around a disciplined investment plan. In our quarterly reviews with clients, we use the IPS as a benchmark for success and how we are making progress towards that goal. This plan can also evolve as your strategies evolve. The chances of achieving your financial goals increase if you have a solid investment plan in place, and that you and your advisor abide by it. Talk to your investment professional about creating one, to ensure that you have the best possible roadmap in place for success.