What is an Investment Policy Statement?
An Investment Policy Statement (IPS) is a written document that outlines important issues such as goals, policies and procedures, as agreed to by both advisor and client for the purpose of managing investments. An Investment Policy Statement should be used when a fiduciary relationship exists and is regularly cited as a best practice in modern wealth management.
What is the role of an Investment Policy Statement?
An Investment Policy Statement provides advisors and investors with a written document to make prudent and rational decisions, helping to eliminate emotional or behavioral factors that can lead to improper decision-making. It establishes a plan to confront complex issues and identifies a systematic discipline for decision-making.
An effective IPS should define 4 key areas:
1) Objectives
Set clear and definable expectations, risk tolerance, return objectives and guidelines for investments.
2) Asset Allocation Policy
Create a structure and identify the investment asset classes used to achieve a diversified portfolio and determine how those assets are best allocated toward larger goals.
What are the benefits of an Investment Policy Statement?
- MVM will have better clarity regarding your expectations and goals
- You will better understand what to expect in our relationship
- MVM will be better prepared to meet your needs
- The IPS will help guide you though our relationship, giving you confidence in and helping you understand our process, recommendations and decision-making as we work towards our common goal...
3) Management Procedures
Provide a guide for selecting, monitoring and evaluating the performance of the invested assets and how to appropriately manage changes.
4) Communication Procedures
Establish a clear protocol for communicating both processes and objectives among all parties involved, while assigning responsibility for implementation.
