How to Write an Investment Policy Statement

By Rocco DiBruno

An indispensable resource for every financial service professionals developing an IPS

 The Investment Policy Statement (IPS) is one of the most critical documents fiduciaries must draft. For years, ERISA and other industry regulations have governed the guidelines all fiduciaries must comply with when drafting one. But the current climate of corporate scandal and the 2008 global banking crisis have led to increased scrutiny by regulators, prompting firms to take a closer look at the quality and integrity of their IPSs and to take steps to have a rigorous formal process in place for drafting them. Endorsed by the Foundation of Fiduciary Studies, this concise guide provides a rigorous framework and the expert insight, information and guidance you need to guarantee that your IPS is in complete compliance with all ERISA-directed requirements.

• Provides a step-by-step plan for creating a uniform IPS that every advisor in the office can follow
• Defines the duties and responsibilities of all parties involved, while clarifying diversification guidelines and providing methods for keeping costs under control
• Packed with ready-to-use templates, sample forms, letters and other documents, diagrams and other valuable tools, including sample Policy Statement downloadable at the companion website
• Designed to get you quickly up to speed on what you need to know to confidently serve your clients with the highest standards of care and protection

• Language: English
• Publisher: Wiley
• Release date: May 21, 2013
• ISBN: 9781118680124

Book preview

Contents

Foreword

Section One: Why Plan Sponsors and All Fiduciaries Need a Formal Process for Writing Their Investment Policy Statement

Chapter 1: Erisa and the Challenge of Fiduciary Responsibility

Writing an Investment Policy

What Is a Fiduciary?

Fiduciary Liability

Chapter 2: Your Fiduciary Responsibilities and Liabilities Under Erisa

Five Fiduciary Responsibilities

Fiduciary’s Personal Liability

A Fiduciary’s Primary Role Is to Manage the Process

Chapter 3: What Is an Investment Policy Statement and What Are the Benefits?

Risk Management

Monitor Investments

Summary

Chapter 4: Utilize the Safe Harbor Provisions Provided by Erisa

Prudent Experts

Five Recognized Safe Harbor Rules

Chapter 5: Complying with Erisa Section 404(c)

Section Two: How to Get Started and Steps to Formalize the Process

Chapter 6: Assembling the Documentation

Chapter 7: Steps to Formalize the Process

Step 1: Decide on Plan Goals, Objectives, and Strategies

Step 2: Decide on Strategy for Managing Risk

Step 3: Determine the Risk Tolerance of the Plan

Step 4: Set Forth Guidelines for Asset Classes

Step 5: Implement an Asset-Allocation Policy

Step 6: Mutual Funds Recommendations

Step 7: Delegate Investment Management Responsibility

Step 8: Investment Monitoring and Reporting

Section Three: The Template IPS

Chapter 8: Sample IPS Templates

Two Distinct IPS Samples

Organization of Templates

Chapter 9: Sample IPS Template #1

Step 1. Executive Summary and Background

Step 2. Purpose of the Investment Policy Statement

Step 3. Duties and Responsibilities

Step 4. Asset Class Guidelines

Step 5. Investment Manager Selection

Step 6. Monitoring the Investment Managers

Step 7. Controlling and Accounting for Investment Expenses

Step 8. Investment Policy Review and Monitoring

Chapter 10: Sample IPS Template #2

Executive Summary

Part I—Purpose

Part II—Investment Management Objectives

Part III—Roles and Responsibilities

Part IV—Investment Manager Selection

Part V—Investment Monitoring and Review

Part VI—Manager Termination

Part VII—Additional Provisions (optional)

Conclusion: Message to Plan Sponsors

Glossary

Appendix

Titles in the FP Books Trade Secrets Series

Wiley Trading Series

Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.

The Wiley Trading series features books by traders who have survived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

For a list of available titles, visit our Web site at www.WileyFinance.com.

Cover image: Blue swirl@Jupiter Images

Cover design: Mike Freeland

Copyright © 2013 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Copyright © 2003 by Marketplace Books. All rights reserved.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission