Policy statement

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Policy statement
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Policy statement term arose relatively not that long ago due to a revolution in the world of investing and decision-making process. New law-affecting situations such as fresh theories, newer investment strategies and approaches or changing economics forced the market to meet and cope such requirements.

As defined by Boone and Lubitz "policy statement should be the basic building block in an intentional investment process"(2004). Main role of such policy is about the customer having the right to know how would investing manager proceed and how would the decisions be made. It is a kind of an agreement between both parties about the process flow and understanding of its parts. Such document should clearly state the expectations, possible risks and supposed profits. When all the rules and regulations are well known, accepted and met by both parties ahead of the venture, then the alleged frustration or misconceptions are less likely to emerge during the investment(Boone N.M., Lubitz L.S. 2004, 1-4).

Investment policy statement

This document is created as a foundation for a specific individual. Is states investors' vision and goals for the process and outlines the most important procedures. It is a base for all future investments and often a starting point for the other projects going forward. Because of its nature it has to be written and internally accepted by the company. Such statement is called to be a "guideline" for the investors onboard(Boone N.M., Lubitz L.S. 2004, 5).

Role of the Investment Policy Statement

Boone and Lubitz(2004) defined four basic roles of the IPS. One of them is to establish clear and understandable expectations, dangers and outcomes - guide how to manage the assets and set simple objectives. Second one is about proper allocation of assets and how to do it in a best and simplest way to achieve the goals. Third role speaks of proper evaluation of performance, managing performance and implementing changes, if necessary. Last procedure should define the way of communication - using proper channels and assigning responsibility to the correct teams/individuals is a key factor.

Sections of the Investment Policy Statement

Successful and beneficial investment plans have to be defined in various sections, which are as follows:

  • Statement of guidelines, attitudes and expectations of planned assets.
  • Outline of proper communication channels.
  • Establishment of the options for a planned investment.
  • Assessment of possible risks and returns.
  • Definition of procedures for monitoring, estimating and, if needed, replacing investment options.
  • Controlling and proper aligning the costs to the accounts and cost centers.
  • Making sure the policy is compliant with state/country etc. laws and regulations(DiBruno R 2013, p. 46-47).

Advantages of the process

There are many, however the most important pros of inserting the IPS are(DiBruno R. 2013, p.48; Boone N.M., Lubitz L.S. 2004, 4):

  1. It works as an influence for the customers willing to choose between the ideas.
  2. Provides a clear and measurable source of what had to be made and what exactly was done.
  3. Guides the advisors in the decision-making process.
  4. It is a ready advisor-customer communication model.
  5. Educates follower about investments methods and explains selected approach.


Author: Kamil Ochmański