No one wants more paperwork. But if your institution has a portfolio manager and a company retirement plan, there is one document that is worth the work it takes to create - and that's an Investment Policy Statement.
What is an Investment Policy Statement (IPS)? An IPS is a document created between a portfolio manager and an institution at the beginning of their relationship. It provides the manager with general goals, rules and strategies that outline how to invest the institution's Plan funds.
An IPS often details specific criteria such as methods for selecting investments, asset allocation range, risk tolerance, liquidity rules, and the level of flexibility allowed
Why is an IPS important? An IPS provides a framework for all investment decisions – and having one makes both the institution and the portfolio manager commit to a disciplined plan.
When investment decisions are made, the institution can refer to the IPS to ensure they are aligned with the Plan goals and objectives. If there is no IPS, a portfolio manager has no set criteria to follow, which could result in miscommunication.
What does an IPS include? At Beirne Wealth Consulting, we work with all of our clients to write an IPS at the onset of our relationship. Our IPS for 401Ks typically includes the following:
- Statement of Purpose for the Policy and the Plan: An overview that defines the Plan, how investment funds will be selected, the purpose of the document, and any participant capabilities.
- Approach to Performance and Measurement: The minimum criteria each investment manager must meet, the institution's role, and approaches for terminating an investment.
- Monitoring of Investment Options: What the ongoing process of monitoring investments will include.
- Participant Investment Education: The supporting materials that will be provided for continual participant education.
How often does an IPS need to be updated? It's important to review your IPS every three to five years to ensure it still meets your Plan's goals and objectives. Your IPS should provide some flexibility, but also set clear parameters.
An IPS is a critical document, and a must-have for institutions. If you need assistance analyzing your current IPS or writing a new statement, contact us for more information.
About the Author: Jim Betzig is Partner and Chief Operating Officer of Beirne Wealth Consulting, specializing in working with both institutional and individual clients, assisting in financial planning, asset allocation, tax-free investing, manager searches and selection, and liability management.
About Beirne Wealth Consulting Services, LLC
Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor with about $2 billion in assets under management and over 25 employees in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.