Investment Policy Statement (IPS)
What an Investment Policy Statement is, what it contains, and why it's the reference point for monitoring portfolio drift and suitability.
AdvisorIQ ·
Definition
Investment Policy Statement (IPS) —
A written document that sets out a client's investment objectives, risk tolerance, time horizon, constraints, and target asset allocation — along with the rules for how the portfolio should be managed and reviewed.
The IPS is the agreed-upon "rules of the game" for a client's portfolio. It typically defines target allocations and acceptable ranges (bands) for each asset class, liquidity and income needs, and any constraints (e.g., no tobacco, concentrated stock restrictions).
Why it matters
The IPS is the benchmark you measure reality against. Two of the most important compliance activities reference it directly:
- Portfolio drift is measured as the gap between current allocation and the IPS target/bands. (See portfolio drift.)
- Suitability reviews check that holdings and recommendations still fit the objectives and constraints the IPS records. (See suitability.)
In practice
A good IPS is only useful if it's monitored. An IPS that says "equities 50–60%" does nothing if no one notices the book has drifted to 68%. AdvisorIQ ties drift and suitability signals back to each household's IPS so the document stays a live control, not a filed-and-forgotten PDF.