Posted by Norman M Boone, MBA, CFP® on February 24, 2015
There is no one right way to write an IPS. There is no prescribed set of topics that need to be included. The length of an IPS can be whatever is right for the advisor and the client.
For that reason, the appropriate length of an IPS rests with what needs to be said and how detailed the discussion of the selected topics need to be.
THE "FOR DUMMIES” version OR just the facts?
For example, if you want to include "Risk Tolerance" as a topic in your IPS, your entire discussion of that might just say "Moderate." That of course assumes that you as the advisor and your client understand what Risk Tolerance is, what its implications are for the investment policies, and that there is a shared and clear understanding of what "moderate" means in the context of an IPS. It also means that you have no concern that if there should ever be litigation, that the court would also understand the meaning of "moderate" in the same way.
I've seen excellent IPSs for pretty large institutional clients that were only one page long. The investment committee wanted a record of their direction given to the investment consultant, but felt that there was enough information in the bullet points, given all the discussion that had taken place, that single words or short sentences were generally sufficient.
I've also seen very good and quite appropriate IPSs that were 20 or 30 pages long, and in a couple of cases, nearly 40 pages. These included lots of background, definitions of key words, discussion about the implications of each particular topic, and paragraphs (rather than single words) on important decisions that are to be implemented. Each reflects the style of the advisor and the particular needs of the client.
START WITH YOUR OUTLINE AND FILL OUT as much as NECESSARY
Since it is likely you are an advisor and want to write your IPSs in a way that reflect your style and your clients' needs, you'll need to make your own decisions about the depth of discussion you want to include on each of the topics that you'll need to address in a thorough IPS:
* * * * *
- Key factual and client background data
- Investment objectives– The client’s goals
- The client's time horizon / risk tolerance
- Asset constraints and restrictions
- Asset allocation / variance limits
- Investment selection criteria
- Assignment of Responsibilities – Who does what
- Performance Review and Evaluation
The IPS can be so much more than just a technical document that outlines your investment strategy and process. It can be the central document informing your client interactions. If you want to learn more about how you can make the most out of your IPSs, check out the webinar we did on the subject with IPS AdvisorPro co-founder, Linda Lubitz-Boone.