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The New Wealth Management: The Financial Advisor's Guide to Managing and Investing Client Assets by Harold Evensky, Stephen M. Horan, Thomas R. Robinson, Roger Ibbotson

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CHAPTER 13

INVESTMENT POLICY STATEMENT

Plan the plan, play the plan.

—Anonymous

In the framework of wealth management, an investment policy statement (IPS) is, in effect, a focused financial plan (i.e., an investment plan). It is a highly customized, client-centric strategic guide to the planning and implementation of any investment program. As a strategic document, the IPS should be relatively stable. Constant changes in investment policy erode the efficacy of a long-term investment plan and dilute the other benefits of an IPS. However, it should not reflect a “hold-and-forget” strategy. As a living document, it should be reviewed on a periodic basis (e.g., annually) and updated as markets and client circumstances change.

We use the term policy rather than plan to avoid misunderstanding by the client regarding the scope of our work. Still, wealth management is a financial planning process, and the steps leading to the development of the investment policy should follow that process.

Historically, the excellent guides regarding the development of an investment policy have focused on the institutional client (e.g., pension plans).1 More recently, CFA Institute has developed IPS guides specifically for the individual investor.2 This chapter draws from these resources and provides an example of an IPS designed for an individual (i.e., noninstitutional) client to discuss the rationale behind the wording and structure of the policy.

As Donald Trone mentions in his book, The Management ...

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