What is an "investment policy statement" (IPS)?

An investment policy statement (IPS) is a formal document that articulates the investment strategy for a client or an investment account. It serves several important functions, including outlining the client’s investment goals, risk tolerance, time horizon, and asset allocation strategy. The IPS acts as a foundational tool for both the investment adviser and the client, helping to ensure that the investment approach aligns with the client's specific requirements and objectives.

This document is crucial as it sets clear expectations regarding how investments will be managed and provides a benchmark for evaluating investment performance over time. By having a formal investment policy statement, both advisers and clients can refer to it for guidance, which enhances accountability and can aid in decision-making processes regarding investments.

A legal document for compliance purposes does not encompass the broader objectives and strategies that an IPS addresses. Similarly, a summary of client complaints would be unrelated to the proactive and strategic nature of planning investments. Lastly, a procedure for client onboarding refers to the processes used to integrate a new client into the advisory firm, which is distinct from outlining investment strategies. Therefore, understanding that the IPS is focused specifically on formalizing the investment strategy clarifies its vital role in financial planning.