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Template for Success: Investment Policy Statements

Advisors don't need to start from scratch every time they need to create an IPS.

Helen Modly, 10/05/2006

Do you have an effective investment presentation that you can easily customize for any prospect? Does it position you as an investment professional who has considered the unique circumstances of your prospect or is it a canned sales proposal? Consider developing a template for an Investment Policy Statement. A well-written IPS can serve as an effective tool to present your firm's investment philosophy and competitive advantages in a very professional manner.

Three Primary Objectives for Your IPS
The primary purpose of an IPS is to identify the investment considerations applicable to an individual prospect and articulate how you, the advisor, plan to address them. A carefully designed IPS can be a versatile tool in the investment process.  While each client will have unique investment considerations, you should have a standardized process to develop your recommendations. This will enable you to design a basic template for your IPS that you can customize for each new client based upon their needs.

Before creating the format for your IPS, consider what you want the document to accomplish. The three most important objectives are:

  • Identify this prospect's unique issues and considerations that shaped your investment recommendations.
  • Communicate your investment philosophy and management style and demonstrate how this will benefit the prospect.
  • Articulate your specific plan for managing this prospect's assets.

How to Begin
Many prospective clients have never heard of an Investment Policy Statement, so your first section should be a brief explanation of why you created it in the first place. This is your opportunity to display that you are not a salesperson trying to "win" their account, but a professional who uses a disciplined, effective process to design an appropriate strategy just for them.

Your introduction should discuss the basic investment process you use such as assessing their current situation, setting objectives, developing a strategy, and identifying the standards for ongoing portfolio monitoring.  This is a good place to include a brief overview of this prospect's current situation and primary planning objectives in a narrative form. One or two paragraphs is usually all it takes to demonstrate that you know your prospect and understand their unique needs.

What to Include
The particular items you include in the body of your IPS will vary from firm to firm and will be determined by your overall philosophy of investment management, as well as how you implement your recommendations. Some typical areas to address are:

Assets to Be Covered under this IPS
List the accounts that are to be included and any assets to be specifically excluded. We use an embedded chart in our Word document to fill in the account types and amounts for each prospect.

Description of Overall Portfolio Objectives
List the specific objectives that this portfolio will attempt to meet such as known withdrawals, contingency reserve needs, expected rates of return, tax efficiency, and diversification or other broad investment goals. We have several standardized objectives that we can quickly customize for any given prospect.

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