An IPS also can help trustees communicate a plan’s investment guidelines and procedures to those assisting in the investment process, such as investment advisors or money managers. Finally, and most importantly, an IPS provides a guide for making future investment decisions. Having and using the policy statement compels the officers to be more disciplined and systematic, which in itself should improve the odds of meeting the investment goals.
The investment process can be seen as occurring in six steps, as described below. Many experts believe that the creation of the IPS is the single most important step in this process. All the other steps either lead into the IPS,or are directed by the IPS.

The initial discussions and sharing of documents that allows both the society and the advisor to learn about one another. On the one hand, this might include learning about the society’s circumstances, goals, income needs, restrictions, current holdings, risk tolerance, etc. The client should also attempt to learn as much as possible about the investment manager’s investment philosophy, practices and procedures.

All the issues related to what is to happen between client and advisor should be placed on the table. Where there are questions or a lack of clarity exists, further discussion may be needed. Eventually the client and advisors need to come to agreement on issues such as the degree of client involvement, the asset allocation to be used, the kinds of instruments to be utilized (or not), how tax considerations will be treated, investment goals, needs for liquidity or income, investment restrictions, investment methodology, and responsibilities of each party to the other.

Once the agreements have been reached on the full list of issues and policies to be followed, they need to be recorded. This document will become the IPS. The client(s) and the advisor sign the document, signifying each party’s acknowledgment of the agreements.

Until there is agreement between the advisor and client about the policies to be followed, no investment trades can responsibly happen. Once the IPS has been signed by all parties, the initial and ongoing trades can be implemented according to the road map provided by the IPS.

Meetings, reports and other communications will occur between advisor and client, generally as suggested in the IPS.

Rarely does a portfolio stay as originally structured. The IPS should describe how the portfolio will be monitored for poor performers, how good performers will be identified, how (and if) rebalancing will be implemented, and it should address any other ways in which the investment manager will try to ensure that the portfolio will stay in line with the objectives set forth in the IPS.

Clients and their needs change over time. It is therefore important that the advisor periodically return to the first step “discovery” to make sure the client’s then-current needs and wishes are being addressed. Every year or two, the IPS should be reviewed by the client and the advisor to ensure continued agreement with its provisions
What Should Be Included in an IPS?
An IPS usually has five major components that should be unique to each society:
  1. All key factual data about the client, including where the client’s assets are held, the amount of their assets under your management, and the identification of interested parties to the account. This can be as detailed or as simple as desired.
  2. A discussion and review of the client’s investment objectives, investment time horizon, anticipated withdrawals or deposits, need for reserves or liquidity, and attitudes regarding tolerance for risk and volatility.
  3. Any constraints and restrictions on the assets, such as liquidity and marketability requirements, diversification concentrations, the advisor’s investment strategy (including tax management), locations of assets by account type (taxable versus tax-deferred), how client accounts that are not being managed (if any) will be handled, and any transaction prohibitions.
  4. The security types and asset classes to be included in or excluded from the portfolio, and the basic allocation among asset categories and the variance (rebalancing) limits for this allocation.
  5. The monitoring and control procedures and responsibilities of each party.
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