Investment Policy Statements Are Important


A decided majority (61%) of financial advisers do not provide their clients with a written investment policy statements.  Such policy statements should, at a minimum, be based upon a number of suitability factors developed by the Financial Industry Regulatory Authority (FINRA). Those factors include, but are not limited to, the client’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other relevant information the client may disclose.

Russell Investments made the finding in a survey of nearly 500 advisers in February 2013 (“Advisers making statement by shunning formal investment statements,” by Jeff Benjamin, InvestmentNews).

According to FINRA, brokers (more and more of whom have moved or are moving to the investment adviser model) must exercise reasonable diligence to obtain this client-specific information.  FINRA has expressed concern that broker/advisers sometime pose questions to their clients that are confusing or misleading and thus taint the information that is gathered.

In addition, some customers are apparently reluctant to have such an in-depth conversation with their advisers, and may not wish to divulge information about other investments held at other firms.

It is difficult, if not pointless, for an adviser to create an “investment policy statement” without having complete and accurate information.  The difficulty in obtaining complete and accurate information may be one reason why so many investment advisers fail to create investment policy statements.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.