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Investment Policy Statements – a founding document for anyone rendering investment advice.

Published: September 6, 2013 by Ian Jones, Fundhouse

The investment product landscape and investment markets represent an exciting challenge for some investment advisers and a daunting prospect for others – for all advisers who don’t approach this potentially complex part of their business in a structured manner it can be a source of significant potential risk and unnecessary complication.

An investment policy statement is an important basic document for a financial adviser to have in their practice, there are several reasons for this, the most obvious of which is that the formality of the investment process and recommendations which the adviser makes are clear and substantiated. All too often the rulings against advisers by the FAIS ombudsman have singled out advisers for issuing investment advice without proper consideration or supporting documentation.

At its heart the investment policy statement is a recorded understanding of the communication between the client and the adviser regarding the investment approach, objectives and constraints. It also serves as a document within the practice to guide other staff as how to implement the recorded investment approach.

An investment policy statement has the additional benefit of guiding the financial adviser toward making similar investment related decisions for clients with similar financial needs – (a good practice management principle); there is nothing wrong with this prescriptive approach as long as the selected investment products suite the client’s identified needs. There is then no need to create a bespoke investment selection for each client – in fact it is counter-productive for investment advisers to run their practices like this – they will eventually spend unnecessary time trying to manage each investment solution – rather than focusing on the individual financial planning needs of their clients.

A comprehensive investment policy statement provides the financial adviser with a clear and structured process to follow when devising an investment approach for the clients – it makes sure that all the relevant aspects of the investment decision making framework have been considered and ensures that the adviser is not prone to omitting some important part of the decision making process.

Another area of focus which the investment policy statement brings is that it requires the adviser to spend less time needlessly reviewing irrelevant financial products which they may never use as a solution for their clients. If their investment policy statement is clear on their investment universe – they need not each time look at the next/ latest product released by a product provider.

A comprehensive investment policy statement is initially a fairly time consuming document to draft and may be somewhat daunting for those advisers with limited investment backgrounds, but for any party, be it a an asset manager or a financial adviser it is a crucial foundation in their approach to making investment related decisions.

Members of the Fundhouse Adviser community can access as draft investment policy template on our website for their use.