Investment Policy Statement PDF

Investment Management Process Person’s Life Stages Phases in the Investment Life Cycle Accumulation Phase – phase wherein individuals attempt to accumulate assets to satisfy immediate needs or longer-term goals Consolidation Phase - phase wherein earnings exceed expenses Spendin...

Investment Management Process Person’s Life Stages Phases in the Investment Life Cycle Accumulation Phase – phase wherein individuals attempt to accumulate assets to satisfy immediate needs or longer-term goals Consolidation Phase - phase wherein earnings exceed expenses Spending phase – the phase when living expenses are covered by social security income and income from prior investments Gifting phase - the phase wherein one extends provincial assistance to others  Insurance – essential component in a financial plan Cash Reserve – helps meet unforeseen occasions Life Cycle Investment Goals Near-term, high-priority goals - short term financial objectives Long-term, high-priority goals - financial independence is achieved Lower-priority goals – achievement of these goals are not that important Portfolio Management Process 1. Policy Statement 2. Examine current and projected financial, economic, political and other conditions 3. Construct a portfolio 4. Continual monitoring Investment Policy Statement A document drafted between a portfolio manager and a client that outlines general rules for the manager. This statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives. -CFA Institute A clear reference frame for investment decisions and it must be based on the investment objectives and risk tolerance of the client. - BSP Investment Policy Statement or Plan - Road map to guide future decisions - Importance of Policy Statement a. Understand and articulate realistic goals b. Standards for evaluating Portfolio Performance c. Imposes discipline d. Protects an investor Factors Considered in an Investment Policy Statement 1. Risk and Tolerance 2. Investment and or return objectives 3. Liquidity requirements 4. Investment horizon 5. Investment strategy and rebalancing 6. The portfolio construction process, including asset allocation and security selection 7. Investment restrictions a. single/group exposure limits b. prohibited investments c. client’s consent for taking losses 8. Investment Performance Review a. Proposed Benchmarks b. Frequency of performance review reporting Factors Considered in an Investment Policy Statement 1. Scope and Purpose 2. Governance 3. Investment, Return, and Risk Objectives 4. Risk Management Factors Considered in an Investment Policy Statement Scope and Purpose Context – a short introduction to relate information about the investor and or the source of wealth to establish the context by which an investment program will be implemented Investor – define the investor and specify which assets are to be governed by the policy Structure Key responsibilities and actors Standard of care for those serving as advisers. Identify an organizational structure for investing Identify a risk management structure applicable to investing Assign responsibility for monitoring and reporting Document acceptance of the Investment Policy Statement Factors Considered in an Investment Policy Statement Governance a. Specify who is responsible for determining the investment policy, executing, and monitoring the results of implementation of the policy. b. Describe the process for reviewing and updating the IPS c. Describe the responsibility for engaging and discharging external advisers d. Assign responsibility for the determination of asset allocation, including inputs used and criteria for the development of input assumption e. assign responsibility for risk management, monitoring, and reporting Factors Considered in an Investment Policy Statement Investment, Return and Risk Objectives a. Describe the overall investment objective. b. State the return, distribution, and risk requirements -state the overall investment performance objective - identify the performance of the objectives for each asset class eligible for investment - define the distribution/spending assumptions -define policy portfolio to serve as the basis for performance and risk assessment c. Define the risk tolerance of the investor Factors Considered in an Investment Policy Statement Investment, Return, and Risk Objectives d. describe relevant constraints -define an evaluation horizon for achievement or performance objective - identify any requirements for maintaining liquidity - identify to what extent, if any, tax considerations will affect investment decisions - identify any relevant legal constraints - identify any restrictions on investment in foreign securities or investment - if relevant, specify a policy on foreign currency management Factors Considered in an Investment Policy Statement Investment, Return, and Risk Objectives e. describe other considerations relevant to investing strategies -state the investment philosophy - identify a proxy-voting policy -identify constraints on participation in securities leading program - identify special factors to be used in including or excluding potential investments from the portfolio Factors Considered in an Investment Policy Statement Risk Management a. establish performance measurement and reporting of accountabilities b. Specify appropriate metrics for risk measurement and evaluation c. Define the process for rebalancing portfolios to target allocation Frequency of Reviewing Investment Policy Statement At least every 1 or 3 years Whenever updates are necessitated by the client Whenever managers express the intention to invest in complex investment products Prior to material changes to any specific investment recommendations or decisions on behalf of the client The needs and circumstances of an investor is not a one-- time occurrence. Always adhere to the stricter rule. Investment Policy Statement Investment Objectives- may be stated in terms of an absolute or a relative percentage return or general goal a. capital preservation b. capital appreciation c. current income Investment Constraints – liquidity needs, time horizon, tax factors, legal and regulatory constraints and other unique needs SMART Goal Specific – Well-defined, clear, and unambiguous Measurable – with specific criteria that measure progress toward the accomplishment of the goal Achievable – Attainable and not impossible to achieve Realistic – Within reach and relevant to your purpose Timely – with a clearly defined timeline, including a starting date and a target date