Planit:Introduction to the Investment Policy Statement

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There is more than one way to learn about PlanPlus Planit. Check out our other Training options, from structured tracks around planning types, to self-serve, mix-and-match topics. In this Video you will Learn... What is the Investment Policy Statement and what can it do for my client? • Investment Management document • Plan suggestions - asset allocation, implementation strategy • Education on asset allocation and risk return Keep on Track! Continue training on... Investment Management Investment Policy Statement Getting Started Why You Should Use Planit Other Related Topics Investment Management Document Comparison Introduction to the Your Working Documents Screen What Kind of Documents Are There? Introduction to Investment Management Purpose of an IPS

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In the past, as a result of a focus on financial products rather than service, many clients looked upon financial advisors as someone with a kit bag of investments and insurance policies and the facilities to implement them. The good news is that the professionalism demonstrated by today’s top advisors has manifested itself as an evolution in approach from a “transaction” orientation to a “problem solving” one. Nowhere is that more evident than in the attention being given to the necessity for having a written Investment Policy Statement (IPS) that clearly articulates what it is that each client hopes to accomplish with respect to their investment portfolio and how they anticipate meeting those objectives.

As has been stated in previous sections of this Handbook, “best practices” dictates that advice on all fronts is given only after a thorough understanding of the client’s needs. In particular, when it comes to the investment management function, it is essential that recommendations be built on a solid foundation of knowledge about the client ¾ both their personal attitudes as well as their financial objectives. For while an insurance policy can be tucked away in a drawer for several years without too much concern, the news media ensures that clients live with their investment decisions every day. And although it is tempting (and often more fun and psychologically appealing) for example, to try to outguess the stock market in the short run, professional advisors must guard clients against leaping forward to specific investment “tactics” or securities before they have adequately established a solid basis for an appropriate long-term strategy.

From the advisor’s best practices perspective, a "qualitative and quantitative statement" developed with the client, will provide a clear idea of how to construct their portfolio to insure it addresses both current needs and long-term objectives. In addition, it will become the "guiding light" by providing a frame of reference for future investment recommendations and for keeping the client “on track”. Whenever something new comes along ¾ a new project, a new investment proposal – the advisor and the client will be able to evaluate it together within the context of the goals that have been jointly set. If the new opportunity complements what has been planned, then it should be explored further. If, on the other hand, it distorts or detracts from the plan, it can be quickly rejected.

A well-written Investment Policy Statement is extremely useful for all these reasons. Clients and their advisors can refer to it, from time to time, to provide an ongoing point of reference for decision-making. While it cannot provide guarantees of performance or success, the IPS can become a sort of ‘contract’, so to speak, that spells the client’s and advisor’s respective responsibilities as well as their mutual expectations about investment philosophy, objectives, targeted returns, portfolio structure and security selection. Using Engagement Agreements mean you can remove some of these aspects from the IPS. Because the IPS can be such a valuable tool, time taken to ensure that it does, in fact, reflect the way the client really feels about the entire investment process will be rewarded for years to come with greater peace of mind for all concerned.

To ensure the greatest likelihood of clients meeting their lifetime financial goals, top professional advisors have learned that they must, in this order: 1. Understand how the client thinks, feels and behaves as an investor 2. Help clients visualize and verbalize what it is they are trying to accomplish 3. Structure the client’s portfolio to most efficiently and effectively manage the relationship between their goals and their risk tolerance 4. Choose investments that have the best possible chance of meeting their needs and expectations.

Again to emphasize, order is important. There is no point, for example, in having clients get excited about a particular stock or mutual fund (Step 4 above) if its historical or projected performance is outside their ‘comfort zone’ in terms of volatility or risk (Step 3 above). Advisors have to ground every decision by the ones made earlier in the process.