{"id":2915,"date":"2019-09-01T11:00:00","date_gmt":"2019-09-01T11:00:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2915"},"modified":"2026-09-18T21:06:58","modified_gmt":"2026-09-18T21:06:58","slug":"investment-policy-statement","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/investment-policy-statement\/","title":{"rendered":"The Investment Policy Statement"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Basics of Portfolio Planning and Construction (2025 Level I CFA\u00ae Exam \u2013 PM \u2013 Module 4)\",\n  \"description\": \"This video lesson covers the Investment Policy Statement (IPS), its importance, and key components. It explains how to define client risk and return objectives, assess financial risk tolerance, and identify investment constraints. It also explores asset allocation strategies, portfolio construction principles, and the integration of ESG considerations into investment planning.\",\n  \"uploadDate\": \"2022-07-06T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/hh4LeaTMl5Q\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=hh4LeaTMl5Q\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/hh4LeaTMl5Q\",\n  \"duration\": \"PT48M55S\"\n}\n<\/script>\n\n\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which statement best describes the reasons for an Investment Policy Statement?\",\n    \"text\": \"Options:\\nA. The IPS ensures there is clear communication between the client and their advisor in regard to the client\u2019s investment objectives.\\nB. The IPS allows for transparency on the fees levied by the advisor for investment work.\\nC. The IPS spells out the assets the advisor should buy and sell on behalf of the client.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. An Investment Policy Statement (IPS) is a written document that governs the portfolio planning process. It helps ensure that the client\u2019s investment objectives and constraints are clearly communicated and understood by both the client and advisor. Option B is incorrect because fee transparency is not the primary purpose of an IPS. Option C is incorrect because an IPS generally establishes investment objectives, constraints, and guidelines rather than specifying individual assets that the advisor must buy or sell.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/hh4LeaTMl5Q?si=-4B-pP3zhcQQaZpZ\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<p class=\"wp-block-paragraph\">Before constructing a client&#8217;s portfolio, an advisor should understand the client&#8217;s goals, resources, circumstances, and constraints. Portfolio planning is the process of constructing a portfolio to meet a client&#8217;s investment objectives. The written document governing this process is the Investment Policy Statement (IPS).<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>The IPS<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The IPS is the communication between a client and their advisor that outlines the plan for achieving investment success. Prior to formulating the IPS, the advisor will work with the client to articulate the client&#8217;s risk tolerance and specific circumstances. Typical constraints center on liquidity requirements, time horizons, regulatory requirements, tax status, and other unique needs.<\/p>\n\n\n\n<div style=\"margin:28px 0;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\" style=\"display:block;width:100%;padding:12px 24px;border-radius:999px;background:#1a73e8;color:#ffffff;font-size:15px;font-weight:500;text-align:center;text-decoration:none;box-sizing:border-box;\">\n    Practice Investment Policy Statement Questions with Our Free Trial.\n  <\/a>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\">In the case of institutional clients, IPS formulation may involve asset-liability management studies, identification of liquidity requirements and a range of tax and legal matters, or governance arrangements in the case of an endowment or pension plan. It may also set out the institution&#8217;s approach to corporate governance and how shareholder voting will be approached and conducted.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A well-structured IPS is a document that the advisor refers to when exploring the feasibility of a particular investment. In some countries, an IPS is, in fact, a legal or regulatory requirement. The document should also be reviewed regularly to keep it in tune with client-based dynamics. This way, it will maintain its relevance and continue to be appropriate for the client&#8217;s objectives.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<h2 class=\"wp-block-heading\"><strong>Question<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Which statement best describes the reasons for an Investment Policy Statement?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A. The IPS ensures there is clear communication between the client and their advisor in regard to the client&#8217;s investment objectives.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">B. The IPS allows for transparency on the fees levied by the advisor for investment work.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">C. The IPS spells out the assets the advisor should buy and sell on behalf of the client.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Solution<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The correct answer is <strong>A<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Investment Policy Statement is the written document governing the portfolio planning process. It ensures the client&#8217;s investment objectives and constraints are clearly communicated.<\/p>\n<\/blockquote>\n\n\n\n<div style=\"text-align:center;margin:35px 0;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\" style=\"display:inline-block;padding:15px 35px;border-radius:999px;background:#1a73e8;color:#ffffff;font-size:17px;font-weight:600;text-decoration:none;\">\n    Start Free Trial \u2192\n  <\/a>\n\n  <p style=\"margin:25px 0 0;font-size:16px;line-height:1.6;text-align:center;\">\n    Master CFA Level I Portfolio Management concepts, including investment policy statements, investor objectives, constraints, risk tolerance, and portfolio guidelines with study notes, practice questions, and video lessons.\n  <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Before constructing a client&#8217;s portfolio, an advisor should understand the client&#8217;s goals, resources, circumstances, and constraints. Portfolio planning is the process of constructing a portfolio to meet a client&#8217;s investment objectives. The written document governing this process is the Investment&#8230;<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7],"tags":[],"class_list":["post-2915","post","type-post","status-publish","format-standard","hentry","category-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Investment Policy Statement | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Learn the key components of an Investment Policy Statement (IPS) and its role in aligning investment strategies with client goals.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/investment-policy-statement\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Investment Policy Statement | CFA Level 1 - 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