Investment Policy Statement
If you were a CEO and were hiring a top echelon person, you would have a contract spelling out their duties and responsibilities. In managing your individual financial affairs, an investment policy statement (“IPS”) serves this purpose, even though it is not a binding contract.
The IPS are written between you and your advisor or portfolio manager and put your goals, approach to investing and the amount or type of risk you feel comfortable with in writing. The purpose of the IPS is to get all your advisors and participants in your financial security seeking to agree on a methodology to lead you toward your goals.
The IPS also identifies the type of investments needed to attain your goals, the expected returns from each investment category, lays out the asset allocation strategy so that your goals will be achieved based on your current investment return assumptions, the role taxes will play in the execution of the plan, sets forth monitoring, reporting, call and meeting intervals, rebalancing periods and methods so that your allocation will continue to be what was originally agreed upon, and circumstances when your strategy and goals might have to change. Also included will be the basis for your advisors’ compensation.
Preparing an IPS will take serious thought and some time, but minuscule effort when measured against the financial security benefits you are seeking for the rest of your life.
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