An Investment Policy Statement (IPS) is a document designed to establish a clear understanding between an Investor and an Advisor as to the goals and management policies applicable to the Investor’s investment portfolio. It clearly articulates the responsibilities of both parties.
An IPS will document the following
- The client’s current financial situation
- The client’s objectives for the portfolio, including their time horizon
- The targeted asset allocation strategy as well as an explanation as to why that strategy is appropriate given the client’s goals and risk profile
- The timing and amount of anticipated withdrawals
- The client’s tax situation and how the portfolio will be managed to minimize taxes
and How the integrity of the portfolio will be maintained, including rebalancing parameters and process.
An IPS serves as a “roadmap” to success as well as a barrier to dangerous, reactionary behavior. It helps to ensure that everyone is on the same page, sharing the same philosophy and targeting the same goals. It promotes a consistent and predictable decision making process that is insulated from distractions that can be tempting to act upon. So no matter the size of your investment account or who is managing it, it is prudent to have an IPS in place. It is a step that will greatly increase the likelihood of a successful investment experience.