One of the most important functions that an investment advisor performs for investors, whether it’s for a wealthy individual, family, or institution, is linking goals to a well-thought-out investment strategy and asset allocation plan.
At True North Advisors, we do this by undertaking a careful review of your net worth and goals, then creating a written Investment Policy Statement (IPS) — a precise roadmap for your investment management strategy.
The IPS is a cornerstone of your customized financial plan at True North. It provides investment guidelines and objectives for your portfolio, and clarifies expectations of risk and performance.
By working with your financial advisor to develop, implement, and maintain an IPS, you gain important control over your financial life (or, in the case of an institution’s board or investment committee, protections from fiduciary liability):
- Providing a clear direction for pursuing your goals: By clearly stating the objectives for the portfolio, specifying which asset classes can be included (or excluded) in your investment lineup, and laying out any tax management parameters or cash flow needs, the IPS solidifies the direction your advisor will take to pursue your investment goals.
- Protecting against making arbitrary or unsubstantiated plan changes: A properly constructed IPS will establish asset allocation parameters, risk tolerance, and explain how performance is to be evaluated overtime. This written documentation prevents any meaningful deviations from your agreed upon risk tolerance and allocation framework.
- Positioning trustees or Board members as an “unattractive defendant”: Without a written IPS, an investment fiduciary for a retirement plan, foundation or endowment risks potentially adverse regulatory oversight — such as monetary penalties, intervention by the Department of Labor (DOL), and legal claims that employees were misled into making inappropriate investment decisions. Delivering and maintaining a current IPS to each participant in your plan can mitigate these risks.
Your financial advisor should be able to demonstrate that the investment decisions they make on your behalf, or on behalf of the institution you represent, are for your sole benefit and are in alignment with your long-term objectives. One of the best ways that an advisor can demonstrate that they adhere to this “prudent-person” standard is to provide you with an Investment Policy Statement.