Keeping your investment strategy aligned with evolving circumstances requires more than casual check-ins. An annual review of your Investment Policy Statement ensures clarity on goals and responsibilities, reinforcing long-term success in an ever-changing market.

Understanding the Investment Policy Statement

An Investment Policy Statement (IPS) is a written guide that lays out the principles and procedures an investor and advisor follow when making decisions. It serves as foundational document for investment decisions, detailing objectives, risk tolerance, asset allocation, and roles for all stakeholders. While not legally mandated for many individual investors, a well-crafted IPS demonstrates prudent fiduciary management and readiness for regulatory or audit inquiries.

The IPS also provides a framework for communication, ensuring that both investor and advisor share a common understanding of targets, benchmarks, and procedures. By documenting these elements in one comprehensive document, you establish consistent performance evaluation and reporting standards that guide every interaction and decision.

Key Components of Your IPS

A robust IPS typically includes the following critical elements, each documented with care and precision:

• Executive Summary: Investor details such as name, age, residence, tax status, current assets, investment horizon, and return goals.
• Objectives: Clear measurable objectives with specified time horizons, for example, achieving a 6% annual return over five years or saving $30,000 per year.
• Asset Allocation: Diversified asset allocation by major classes (equities, bonds, real estate, alternatives), including target weights and allowable ranges.
• Risk Tolerance and Constraints: Clearly documented risk tolerance and constraints, such as maximum drawdown limits, liquidity requirements, prohibited asset classes, tax considerations, and legal or regulatory factors.
• Selection and Monitoring Guidelines: Procedures for choosing, reviewing, and replacing investments or managers, including performance review frequency and evaluation horizons.
• Roles and Responsibilities: Assignment of duties for drafting, reviewing, implementing, and updating the IPS, along with reporting and compliance tasks.
• Evaluation and Reporting Procedures: Specification of report frequency (usually quarterly), performance attribution by manager and asset class, fee benchmarking, and compliance documentation.
• Communication Protocols: Mechanisms for investors and advisors to discuss progress, concerns, and updates, with an explicit recommendation for annual review meetings.

Why Annual Review Matters

Markets shift, personal circumstances evolve, and regulations change. Conducting an annual IPS review ensures your strategy stays relevant and effective:

• Alignment with Evolving Personal Goals: Annual updates keep objectives tied to career milestones, retirement dates, or major life events.
• Regulatory and Audit Readiness: A current IPS demonstrates proactive fiduciary diligence during Department of Labor or tax authority audits.
• Ongoing Risk and Performance Oversight: Regular reviews confirm that risk tolerance, return targets, and asset allocation remain appropriate.
• Clarity and Accountability: Annual documentation reinforces clear roles and responsibilities, ensuring all parties are aligned on expectations and sign off on updates.

Best Practices for Annual Documentation

To make your annual IPS review productive and comprehensive, follow these guidelines:

• Schedule formal review meetings at least once every 12 months, with calendar invites and agendas distributed in advance.
• Use a standardized checklist that covers objectives, asset allocation, risk parameters, benchmarks, fees, and compliance items.
• Document any material changes in personal circumstances, market outlook, or regulatory environment immediately, even if outside the annual cycle.
• Benchmark performance against predetermined indices (e.g., S&P 500 for U.S. equities, Bloomberg Barclays U.S. Aggregate for bonds) and record variance explanations.
• Obtain written acknowledgments from all signatories to confirm understanding and acceptance of the updated IPS.
• Archive each version securely, maintaining a clear audit trail of revisions and approvals.

Sample Annual Review Framework

Below is a sample structure to guide your annual IPS update, summarizing common review triggers, frequencies, and responsibilities:

Implementing Your Annual IPS Update

Starting your annual process begins with assembling all relevant data: performance reports, benchmark comparisons, fee schedules, and any documentation of significant events. Convene with your advisor or internal team to review each section of the IPS against current goals, market conditions, and regulatory guidelines.

As you make revisions, highlight areas where assumptions have shifted — perhaps a new risk tolerance level due to approaching retirement, or a desire to increase exposure to alternative investments. Finalize updates by securing written approval from all parties and distributing the refreshed IPS to everyone involved.

Finally, maintain a secure archive of each version. This not only prepares you for potential audits but also provides a clear historical record of how your strategy has evolved over time.

By embracing an annual documentation and review process, you empower yourself to navigate market volatility, adapt to life changes, and uphold the highest standards of fiduciary care. Make your IPS review an event on the calendar — and watch your investment strategy thrive with informed confidence.