Developing an Investment Policy Statement for Retirement Plan Sponsors

Please note: This is an AI generated transcription – there may be slight
grammatical errors, spelling errors and/or misinterpretation of words.

Developing an Investment Policy

Statement
As a member of your organization’s Retirement Plan Investment Committee,
your job is to make sure the assets of your retirement plan participants are
invested wisely. But how do you go about this important task? One key step is
to create an Investment Policy Statement, or IPS.

An IPS is a formal document that explains the guidelines and procedures for
how to manage an organization’s investment portfolio. Typically, an IPS will
define the organization’s investment goals, Risk tolerance, asset allocation, and
other investment related policies. It gives clear directions to finance staff and
committee members.

Having a written IPS provides several benefits. One of the biggest benefits is
that it helps ensure consistency and accountability in the process. And how the
portfolio is managed over time, regardless of who is managing it. An IPS may
also promote better long-term investment performance by establishing a
disciplined process up front.

It can help prevent emotion based or reactionary investment decisions that
might undermine the portfolio success. The policies contained in an IPS. Help
the organization stay on track, even when markets are volatile. So, what exactly
goes into an IPS? First, you’ll want to outline the organization’s investment
objectives.

Is the overall goal to preserve capital, generate income, or grow the portfolio’s
value over time? What are the long term and short-term goals you want to
achieve? Next, make sure to specify your time horizon and risk tolerance. Then
give details about asset allocation. What percentage of the portfolio should be
invested in stocks?

bonds, alternative investments, and other asset classes. Your IPS should also
include policies regarding diversification, liquidity needs, rebalancing, and
selecting and monitoring investment managers. It’s a good idea to document any
investment restrictions, including companies or sectors of the economy, that are
off limits from an investment point of view, or that conflict with the mission or
values of the organization.

Lastly, be sure to explain the investment decision making process. reporting
requirements, and oversight procedures. Some organizations also choose to
include their conflict-of-interest policy in their IPS. Keep in mind that creating
an IPS is not something to be done hastily. It’s a thoughtful and sometimes
lengthy exercise that should involve lots of key stakeholders, including
investment committee members, Senior leadership and staff, plus your
professional advisors.

Once you have created a draft of your IPS, it will need to be approved by your
board of directors or other governing body. It should then be reviewed and
updated on a regular basis, typically once a year. By documenting investment
objectives, policies, and procedures, an IPS promotes continuity, accountability,
and better investment outcome.

That’s why it’s a crucial part of effective long term portfolio management. For
help developing an IPS for your organization, call CAPTRUST. We can help.
Disclosure: CapFinancial Partners, LLC (doing business as
“CAPTRUST” or “CAPTRUST Financial Advisors”) is an Investment
Adviser registered under the Investment Advisers Act of 1940. However,
CAPTRUST video presentations are designed to be educational and do
not include individual investment advice. Opinions expressed in this
video are subject to change without notice. Statistics and data have come
from sources believed to be reliable but are not guaranteed to be
accurate or complete. This is not a solicitation to invest in any legal,
medical, tax or accounting advice. If you require such advice, you should
contact the appropriate legal, accounting, or tax advisor. All publication
rights reserved. None of the material in this publication may be
reproduced in any form without the express written permission of
CAPTRUST: 919.870.6822 © 2024 CAPTRUST Financial Advisors