Investment Policy Statement (IPS)

Pension plans are required to have an IPS because the Department of Labor says the investment of retirement assets is too important to rely on verbal communications. You want a clear communication with your advisor. You do not want to go into any type of dispute with Wall Street without documentation. You will lose.

You should only select advisors who provide an investor-friendly IPS as one of their services.

Purpose

An IPS is going to document your communications with your financial advisor. It describes your expectations, requirements, and restrictions. This information is written so it is not subject to misunderstandings or misinterpretation. You have a permanent record of what was communicated to your advisor if there is a future dispute.

Expectations

An expectation describes what you want to see happen:

  • Performance
  • Tolerance for investment risk
  • Disclosure of expenses

Requirements

You may have specific requirements for your investment advisor:

  • Quarterly performance reports
  • Quarterly meetings to discuss results
  • Complete disclosure for all expenses
  • Annual planning reviews

Restrictions

You may have restrictions that impact how your assets are invested. For example, you may have a:

  • Cap on your exposure to common stocks
  • Religious belief; no birth control stocks
  • Personal belief; no tobacco stocks
  • Policy on liquidity or income

Advisor Comments

Your advisor must have the opportunity to add comments to make this an effective communication. And, he should agree that your expectations, requirements, and restrictions are realistic and achievable. 

Paladin says.....

The Department of Labor requires documented communications for pension plans. Your personal assets are every bit as important as your assets in company plans. The assets in the pension plan and personal assets will fund your income requirements for your retirement years.

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