There is no standard format to the Investment Policy Statement, but most conform to a basic structure. The two key sections are the investment objectives and the investment constraints and some IPS documents will focus on these two elements.
Typical IPS Structure
The IPS document usually follows the structure below:
- Description of the client
- Statement of Purpose
- Purpose of the IPS
- Statement of Duties and Responsibilities
- Duties and responsibilities of all parties – client, advisor, custodians
- The steps that will be undertaken to keep the IPS updated and procedures to respond to various contingencies
- Investment Objectives
- The client’s investment objectives
- Investment Constraints
- The client’s investment constraints
- Investment Guidelines
- Information on how the investment policy should be executed and includes the permissibility and exclusion of assets
- Evaluation and Review
- Guidance on obtaining feedback for investment results
- Strategic asset allocation (SAA) – also known as the policy portfolio which provides the baseline portfolio allocation
- Rebalancing policy
Which portion of the investment policy statement is likely to contain information on leverage limits, maximum derivative exposure and the exclusion of stocks from a particular industry?
A. The procedures section
B. The investment guidelines
C. The evaluation and review section
The correct answer is B.
The investment guidelines section contains information on how the investment policy should be executed and includes the permissibility and exclusion of assets.
Reading 54 LOS 54b:
Describe the major components of an IPS