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Fiduciary Traps to Avoid #3: Not having and executing an Investment Policy Statement (IPS)

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We continue our commitment to keep you informed in some of the key pitfalls you could face in your role as a fiduciary.  In this blog we tackle Trap #3.  This blog addresses the challenges that plan sponsors will likely face when they ignore the importance of drafting and following a clear Investment Policy Statement. In fact, it is one of the first things that should be accomplished when establishing a retirement plan.  

What is an Investment Policy Statement (IPS) and why is it important?

The addition of an IPS as part of a company’s retirement plan can offer formal structure for the retirement plan committee members,  The structure may prove beneficial as they face decisions that require specific guidance.  Decisions such as selecting appropriate investment options and evaluating the performance of the options over time. In summary, the primary purpose of an IPS remains to provide guidelines for implementation regarding the selection of the best investment options for the retirement plan.

When you share the plan’s formal IPS, the participants gain a much better understanding of the decision making procedure you have embraced regarding the selection of investment options  – whether the focus of the plan sponsors has been on minimizing risk, reducing fees or even ensuring diversification of assets, the policy statement will help to clarify any questions on these or other issues from the participants.

The presence of a written investment policy statement will build confidence that the plan sponsors have been thoughtful and careful in their approach to all their decision making, most importantly their process for evaluating and selecting investment options.