When it comes to managing wealth, especially for high-net-worth families and business owners, investment decisions can feel overwhelming. Market volatility, emotional reactions, and competing priorities can quickly lead to inconsistent choices that erode long-term success.
Thatโs where an Investment Policy Statement (IPS) comes in. Yet despite its value, many investors skip this crucial document, unknowingly putting their financial future at risk.
In this article, weโll explore the investment policy statement importance, outline why it matters for wealthy investors, and offer actionable tips for creating a framework that guides your portfolio with purpose.
What Is an Investment Policy Statement?
An Investment Policy Statement is a written document that outlines the rules, guidelines, and objectives for managing your investments. It acts as a roadmap, helping you and your advisor make consistent, disciplined decisions based on long-term goals rather than short-term market noise.
A typical IPS includes:
- Your investment objectives (growth, income, preservation, etc.)
- Risk tolerance and time horizon
- Asset allocation targets
- Liquidity needs
- Performance benchmarks
- Rebalancing procedures
- Guidelines for unique considerations, such as concentrated holdings or ESG preferences
This isnโt just a formality, but itโs also a strategic tool to keep your investments aligned with your goals.
Why Wealthy Investors Canโt Afford to Skip It
1. Emotional Investing Costs Real Money
Without a clear IPS, investment decisions often become reactive. Market dips trigger panic selling. Headlines prompt impulsive trades. A friendโs stock tip leads to overexposure.
Weโve seen it before: an investor sells at the bottom, misses the rebound, and locks in losses.
An IPS acts as a behavioral guardrail. It reminds you (and your advisor) of the bigger picture, reinforcing discipline even during turbulent times.
2. Complexity Requires Clarity
High-net-worth individuals often have complex financial lives: trusts, multiple accounts, business holdings, real estate, charitable vehicles, and more. Without a centralized plan, itโs easy to lose track of the bigger strategy.
An IPS creates clarity. It brings your entire financial picture into focus and ensures every piece is working toward a common objective, whether thatโs multigenerational wealth transfer, income generation, or philanthropic giving.
3. Coordination Across Your Advisory Team
Wealthy families typically work with a team: financial advisors, CPAs, estate attorneys, insurance professionals. The IPS becomes a communication tool across this teamโensuring decisions about taxes, gifting, or cash flow align with the investment strategy.
Without one, advice can become siloed or even contradictory.
Tips for Wealthy Investors: How to Build a Strong IPS
1. Start With Your โWhyโ
Before discussing numbers, clarify your goals. Are you focused on retirement income, legacy planning, or selling a business? Your IPS should reflect your values and lifestyle, not just risk metrics.
2. Be Realistic About Risk
Many investors overestimate their risk tolerance until the market turns. Your IPS should balance your ability to take risks (based on your financial capacity) with your willingness (based on your emotional comfort).
3. Customize for Unique Assets
If you own a concentrated stock position, family business, or real estate portfolio, your IPS should address how those assets are handled. These require special considerations beyond a typical portfolio mix.
4. Review and Revisit
Your IPS is a living document. Life changes, such as retirement, divorce, business sales, or new tax laws, should trigger a review. Make updates as needed to ensure continued alignment.
5. Work With a Fiduciary Advisor
A fiduciary advisor, like the team at RIA Advisors, will help you craft and maintain an IPS tailored to your goals. Theyโll also use it to guide decisions and keep your strategy on track.
Ready to Bring Clarity to Your Investment Plan?
If youโre managing significant wealth or navigating major financial transitions, a well-crafted IPS is essential. At RIA Advisors, we help clients create personalized investment policy statements that serve as the foundation for long-term financial success. Contact RIA Advisors today to schedule a consultation and start building your strategy with confidence.
FAQs
What happens if I donโt have an investment policy statement?
Without an IPS, your investment decisions may lack consistency, increasing the risk of emotional choices and misalignment with your long-term goals.
How often should my IPS be reviewed?
We recommend reviewing your IPS at least once a year, or whenever a major life event or financial change occurs.
Is an IPS only for large portfolios?
No. While itโs especially helpful for complex wealth, anyone with financial goals can benefit from a written plan that guides decision-making.
Can my IPS include charitable or legacy goals?
Absolutely. Your IPS should reflect all facets of your financial visionโincluding philanthropy, estate planning, and values-based investing.
Will my advisor help me write the IPS?
Yes. At RIA Advisors, your fiduciary advisor will lead the process, ensuring your IPS is customized, comprehensive, and actionable.
