What is an "investment policy statement" (IPS)?

An investment policy statement (IPS) is a comprehensive document that serves as a roadmap for an investor's financial goals and the strategies that will be pursued to reach those objectives. It typically outlines the client’s investment goals, risk tolerance, time horizon, and specific investment strategies. The IPS acts as a guide for both the investor and the advisor, ensuring that investment decisions remain aligned with the agreed-upon goals and strategies over time.

This document helps to clarify the expectations of both parties and can include asset allocation guidelines, investment selection criteria, and performance evaluation metrics. By having a well-defined IPS, clients can maintain focus on their long-term investment strategy, rather than being swayed by short-term market fluctuations. It provides a framework for making informed investment decisions that fit the client's unique financial situation.

The other options do not encapsulate the essence of an IPS. A document tracking daily market changes would focus solely on market fluctuations, while a report summarizing fund performance would provide retrospective insights rather than forward-looking strategies based on client goals. A legal agreement between the advisor and client, while important, does not delve into the specific investment strategies and goals that an IPS would typically cover.