An investment policy statement (IPS) can make navigating the complexities of financial decisions and investments easier, no matter how challenging the market environment. Given its meaningful role, an IPS shouldn’t just be words on a page; it’s a critical document that, when done well, bridges the gap between a client’s aspirations and reality, delivering a clear roadmap to financial success.
For advisors, an actionable IPS should include your clients’ financial hopes, risk tolerance capacity and expectations. Transparency and accountability are key factors in your client relationships, and a well-crafted IPS is a symbol of these values.
What should an investment policy statement contain?
A good IPS includes several key components to ensure that it’s comprehensive, educational, and personalized to the individual client.
- Statement of objective
The IPS should begin with a clear and concise statement of objective, outlining the aim of the client’s investment strategy. Things to be considered include the primary investment objective, time frames, and any secondary objectives. It serves as a clear roadmap for both the advisor and the client, aligning expectations and ensuring that ongoing investment decisions are made with these objectives in mind.
- Spending policy
The spending policy portion of the IPS defines how a client intends to allocate their wealth, addressing both current and future spending needs. It’s important to detail spending guidelines, as this has a significant impact on investment strategies.
- Roles and responsibilities
The roles and responsibilities section outlines the responsibilities of everyone involved in the implementation, control, and ongoing management of the strategy. Who is responsible for reviewing the IPS, for example, or setting asset allocation targets? Clearly defining who is responsible for what helps avoid confusion and establishes accountability.
- Investment policy
This is the heart of the IPS and includes crucial elements such as asset allocation, risk tolerance, investment guidelines, and performance benchmarks. It should provide a roadmap for investment decisions, specifying the types of assets to be invested in, allocation percentages, and how risk is managed.
What should you look for in an investment policy statement?
A well-structured IPS is one that reflects the client’s unique financial situation and goals while adhering to best practices. As well as the four key components above, it should be put together with the following rules in mind:
- Include the right amount of information
Striking the right balance between providing comprehensive information and capturing essential data is key. You can avoid information overload by focusing on what’s relevant and necessary to achieve the client’s objectives.
- Use clear and concise language
The IPS should use plain language that clients can easily understand, avoiding jargon and technical terminology that might cause confusion. For example, asset allocations should help clients understand the risk and return tradeoffs of their investing parameters, not just define allocations.
- Keep in mind client investment objectives as well as client directives/constraints
The IPS should clearly outline the client’s financial objectives and goals, both short- and long-term. It should reflect the client’s risk tolerance and time horizon, ensuring that the investment strategy is in line with their comfort level and time expectations.
Empowering advisors with our investment policy statement generator
At Andes Wealth, we pride ourselves on providing a cutting-edge IPS generator that stands out in the market for several reasons:
- Efficiency and Speed: Generate IPS documents with the click of a button, saving time and resources.
- Intuitive: Easy to create an IPS tailored to your clients’ needs.
- Client Friendly: Outlines the client’s financial objectives and goals in plain language that is easy to understand, fostering transparency and client confidence.
- Compliance: Strikes the right balance between substance and compliance enforcement
A well-structured IPS is an essential document for effective wealth management, and the right tools, like the Andes Wealth IPS, can make the whole process smoother, more efficient, and more client-friendly. Ready to start creating IPSs that strengthen your client relationships? Find out more here.
