If you are a high-net-worth individual, you may have heard of the importance of having an investment policy statement. But what exactly is an investment policy statement? And what steps should clients and advisors take to create one? U.S. News & World Report spoke with Delegate Advisors Chief Executive Officer Andy Hart for insight.
According to Hart, an investment policy statement is the governing document for a client’s investment portfolio, written with a set of guidelines that are crafted to achieve certain objectives. For clients with complex investments and multiple portfolios, Hart recommends having these statements in place so advisors clearly understand how they should meet the goals of each individual portfolio.
“The portfolios may have different objectives. Each client should have an investment policy statement, but sometimes they don’t want to go through the hassle of putting one together,” says Hart. Fortunately, that is where assistance from an experienced wealth advisor can come in.
In order to clearly and effectively outline the client’s wealth goals in regard to asset allocation, an investment policy statement may be as detailed or basic as desired. Hart explains that the point of this section is not the number of details, but rather to understand the client’s level of tolerance. For example, while some portfolios may outline specific asset classes and how they are allocated in the portfolio, others may want to simply quantify the functional purpose of the assets.
It is important to note that once an investment policy statement is in place, it should be modified to adapt to changing goals and situations – a responsibility that lies with both the client and the advisor.
“You are responsible to listen for the change in their objectives, but you need to educate the client that they’re a party to the conversation,” Hart tells the publication. “It’s not a one-way thing.”