Need a personal Investment Policy Statement?
It's the foundation of a successful wealth management strategy
It’s difficult to predict what our lives, financial and otherwise, will look like decades from now. However, creating a personal investment policy statement (IPS) can help you design a sound investment strategy to reduce uncertainty, manage risk, leverage investment opportunities and meet your financial goals throughout life.
The Huntington Private Bank’s Joseph Wojcik, senior vice president of Wealth and Investment Management, explains why every client with a managed account has an IPS – and how this important financial tool contributes to financial empowerment and success.
What is an IPS?
An IPS is a statement from you, the client, that delineates your personal financial information and your investment goals.
The statement helps prevent deviation from your intended investment strategy by establishing a clear understanding of your investment objectives between you and your wealth advisor. It ensures you have a ‘meeting of the minds’ with your advisor so you’re on the same page.
At Huntington, every personal IPS begins with key components: a statement of goals, an overview of investment assets, portfolio goals, return expectations and unique circumstances. The IPS also includes a statement of acceptable risk tolerance based on the client and his or her asset allocation objectives.
The advisor’s role is to continually educate clients as their lives evolve, help determine an appropriate amount of risk and ensure that risk is appropriately reflected in their IPS, Wojcik says. That’s why creating an IPS must be a collaborative effort between you and your wealth management team.
It’s critical that you have a detailed discussion with your advisor to develop an IPS tailored for the individual.
The role in investment strategy
Once established, the IPS will serve as a central tool in meetings with your wealth management team.
Anyone who engages a money manager should have an IPS. As the introduction of Huntington’s IPS states, it maintains your investment intent and ensures your advisor understands your goals and objectives.
Without an IPS to guide decision-making, your investments may not be consistent with your unique goals and risk tolerance, he says. You may also miss opportunities to capture equity gains.
When significant corrections occur in equity markets, you’ll have the luxury of patience if you have an appropriate and well-understood investment risk. You can endure the correction and participate in the usual market recovery.
Because your IPS provides a foundation for your overall investment strategy, it should be updated regularly to reflect any changes that have taken place in your life. Huntington requires a new IPS or an affirmation of the existing IPS every two years for all discretionary investment management accounts, Wojcik says.
“A well-crafted IPS makes for a more satisfying relationship,” he says. “Everyone has short-, medium- and long-term goals. Understanding your goals allows us to match our investment management to them.”
Your financial goals may include liquidity needs for college expenses, cash-flow needs related to retirement, determining risk tolerance for proceeds from a sale of a business or legacy goals for your family’s financial security. Whatever they may be, an IPS can help ensure that you are well prepared for whatever your financial present and future requires.