Our Investment management process is an established framework for identifying, analyzing, and implementing prudent investment opportunities for our clients.
By following a disciplined investment process, we’re able to make rational investment decisions, focused on long-range goals, which are designed to maximize long-term results.
Our Six-Step Investment Process
- Financial Analysis: Accurate, in-depth portfolio review & analysis
- Asset Allocation: Align with the market
- Portfolio Strategist Selection: Institutional vision
- Investment Management Firm Selection: Security selection
- Monitoring Your Portfolio: Stay on track
- Reporting: Keep informed
Portfolio Management 101: The Investment Policy Statement (IPS)
“Without a carefully written IPS, investment advisors and/or consultants managing a portfolio are like crew of a ship that sets to sea without a navigation system and without a clear sense of the intended destination. Both the cargo and the crew are in jeopardy without adequate preparation and a well-charted course.”
~Blaine F. Aikin, AIFA®, CFA®, CFP®, President and CEO of fi360.
At Wealthcare Financial Group, Inc., our fiduciary responsibility as an investment advisory and institutional consulting firm begins with the preparation and implementation of an Investment Policy Statement. This process is so important, that we refer to it as “Portfolio Management 101”.
The IPS is the cornerstone of the investment decision-making process and your safeguard, as an investor. It describes the plan’s investment strategy and ongoing fiduciary performance review process. It also gives you, the investor a structured process for selecting or “firing” private money managers, exchange traded funds (ETFs), mutual funds, fixed income and alternative investments. In short, “the investment policy statement provides evidence that a clear process and a methodology exist for selecting and monitoring plan investments.” (J. Gardner, How to Write an Investment Policy Statement)
If the policy development processes thorough, it will cover all the elements that should be included in the investment policy statements. The following are the six sections that should be included in most IPS documents:
The Overview of the IPS should describe a) the purpose of the portfolio, b) governing law and guiding documents, and c) key aspects of the funding policy. The purpose of the portfolio is often closely associated with the account or client type. Governing law is also closely associated with account or client type. The following are some examples of governing law, for various client types:
- Employee Retirement Income Security Act (ERISA): Corporate Retirement Plans
- Uniform Prudent Investors Act (UPIA): Trusts
- Uniform Prudent Management of Institutional Funds Act (UPMIFA): Charitable Organizations
- Management of Public Employee Retirement Systems (MPERS): Public Employee Retirement Funds (i.e. State & Local Pensions)
Roles and Responsibilities
The investment advisor and investment committee are tasked with important duties as “Stewards” and fiduciaries, also referred to as “service providers”. Therefore, in this section of the IPS, all service providers who are named in the investment process should be identified, along with their roles and responsibilities.
Asset Allocation Process
Structure of the investment portfolio determines its success. Therefore, the asset allocation section of the IPS should state and define each asset class that will comprise the overall investment portfolio. In addition, the asset allocation strategy needs to be identified and explained. For example, will the portfolio be managed in “tactically”, “strategically”, “passively” or “actively”? Also, how often will the portfolio be rebalanced and under what circumstances is rebalancing warranted? Furthermore, what are the restrictions (if any) on prohibited securities or asset classes?
The procedures to perform due diligence on investment managers have become well-established. The following are some of the more widely used due diligence criteria: 1) Manager tenure 2) Minimum assets held in the product 3) Style consistency 4) Expense ratio 5) Risk-adjusted return 6) Return relative to peer group and best-fit index. Depending upon the client type, a formal request for proposal (RFP) should be utilized to assist the investment fiduciary and/or Steward with obtaining the data necessary to conduct a thorough due diligence research process.
Investment fiduciaries must regularly monitor the activities of the investment managers and other service providers they have engaged to be sure they are meeting performance expectations. The section of the IPS will point back to the investment due diligence criteria and the service provider duties and responsibilities because decisions to retain service providers usually are based on the same factors that led to their selection.
Because expenses often represent the largest constant drain on portfolio assets, this section of the IPS should require all service providers to fully disclose direct and indirect expenses incurred by the portfolio attributable to their services. Additionally, expenses should be highlighted here as a specific monitoring criteria. It is imprudent for investment fiduciaries to waste money; therefore, it is a clear fiduciary obligation to control and account for all expenses.
Attachments can be used to provide information that is more detailed or changes more frequently than what is advisable to include in the main body of the IPS. The following are representative of documents that may be helpful for fiduciaries to have readily accessible as attachments to the IPS:
• Guiding documents referenced in the Overview
• The asset-liability study or pro-forma funding policy
• A list of the persons or firms currently serving the plan in the capacities referenced under Roles and Responsibilities
• Current capital markets statistics (risk, return, and correlation estimates) for the asset classes referenced in Asset Allocation Procedures
• A code of ethics policy for the stewards of an institutional portfolio
*The above content entitled, “Portfolio Management 101: Beginning with the Investment Policy Statement (IPS)” was adapted from the article entitled, “The Investment Policy Statement: A Business Plan for Investment Fiduciaries”, by Blaine F. Aiken, AIFA®, CFA®, CFP®.