How to Write an Investment Policy Statement
Wiley Trading 2. Aufl.
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
Foreword by Don Trone 11 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 17 Writing an Investment Policy 17 What Is a Fiduciary?18 Fiduciary Liability19 Chapter 2 YOUR FIDUCIARY RESPONSIBILITIES AND LIABILITIES UNDER ERISA 21 Five Fiduciary Responsibilities 21 Fiduciary’s Personal Liability 22 A Fiduciary’s Primary Role Is to Manage the Process 23 Chapter 3 WHAT IS AN INVESTMENT POLICY STATEMENT AND WHAT ARE THE BENEFITS? 25 Risk Management 25 Monitor Investments 26 Summary 27 Chapter 4 UTILIZE THE “SAFE HARBOR” PROVISIONS PROVIDED BY ERISA 29 Prudent Experts 29 Five Recognized “Safe Harbor” Rules 29 Chapter 5 COMPLYING WITH ERISA SECTION 404(c) 31 SECTION TWO: How to Get Started and Steps to Formalize the Process Chapter 6 ASSEMBLING THE DOCUMENTATION 35 Chapter 7 STEPS TO FORMALIZE THE PROCESS 37 STEP 1: Decide on Plan Goals, Objectives, and Strategies 37 STEP 2: Decide on Strategy for Managing Risk 37 STEP 3: Determine the Risk Tolerance of the Plan 38 STEP 4: Set Forth Guidelines for Asset Classes 39 STEP 5: Implement an Asset-Allocation Policy 39 STEP 6: Mutual Funds Recommendations 39 STEP 7: Delegate Investment Management Responsibility 40 STEP 8: Investment Monitoring and Reporting 40 SECTION THREE: The Template IPS Chapter 8 SAMPLE IPS TEMPLATES 43 Two Distinct IPS Samples 43 Organization of Templates 43 Chapter 9 SAMPLE IPS TEMPLATE #1: For Participant-Directed 401(k) That Intends to Comply with ERISA Section 404(c) 458 STEP 1 Executive Summary and Background 45 STEP 2 Purpose of the Investment Policy Statement 46 STEP 3 Duties and Responsibilities 48 STEP 4 Asset Class Guidelines 50 STEP 5 Investment Manager Selection 52 STEP 6 Monitoring the Investment Managers 53 STEP 7 Controlling and Accounting for Investment Expenses 55 STEP 8 Investment Policy Review and Monitoring 56 Chapter 10 SAMPLE IPS TEMPLATE #2: For High-Net-Worth Individual Setting Up a Family Trust 57 Executive Summary 58 PART I—Purpose 59 PART II—Investment Management Objectives 59 PART III— Roles and Responsibilities 60 PART IV— Investment Manager Selection 61 PART V— Investment Monitoring and Review 63 PART VI— Manager Termination 65 PART VII— Additional Provisions (optional)65 Conclusion MESSAGE TO PLAN SPONSORS 67 Glossary 69 Appendix: The Firm Profile 77 About the Author 79
"The preparation and maintenance of the Investment Policy Statement is the most critical function a fiduciary performs . . . this compact strategy guide provides advisors and their fiduciary clients with a useful tool that will help them comply with their ERISA-directed requirement."—Donald B. Trone, CEO (Chief Ethos Officer), 3ethos ERISA and other guidelines have long required fiduciaries to implement a uniform process for drafting an Investment Policy Statement (IPS). But historically, enforcement has been lax, leaving companies little motivation to develop a formal practice. Now, times have changed. Corporate scandals, coupled with volatility in the markets, have generated an increase in complaints, lawsuits and even the possibility of government legislation requiring an official IPS. This compact guide will help financial advisors, plan sponsors, money managers and all professional fiduciaries protect themselves, stay in compliance—and stay one step ahead of the government mandate—by putting a simple IPS process in place. Thornburg Investment Management provides an easy-to-follow framework for producing a well-written IPS based on practices recognized by the Foundation for Fiduciary Studies. In clear terms, he outlines how to . . . Define the duties and responsibilities of all parties involved Clarify diversification guidelines and keep costs in check Identify due diligence criteria for selecting investment options PLUS: Two Sample Policy Statements are included which can be downloaded directly from the website at: www.thornburg.com/IPS. Both templates make implementing a proper IPS easier and more accurate. With this thorough guidebook, you can prepare documents that meet all industry standards of compliance and federal regulations with relative ease—every time—while protecting yourself and your firm from liability.