A written investment policy statement (IPS) helps to document the employer's practices—a good source of protection in the event of an audit. While every plan sponsor's IPS will vary, consider including these sections:

Statement of purpose. This states the employer's commitment to run the plan for the benefit of its participants under the Exclusive Benefit clause of ERISA .
Investment objectives. The general objectives regarding performance, costs, diversification and other matters can be spelled out in this section.
Investment guidelines. This section details the investment categories for which plan investment options will be provided. The types and numbers of investments to be offered in each category will also be detailed, as will matters such as benchmarks and other expectations.
Selection of investment managers/options. This part describes the factors to be considered in selecting an investment manager or option, such as the investment manager's organization, philosophy and process, resources, performance and fees.
Monitoring of investment managers and investment options. Due diligence also applies to ongoing investment monitoring. Factors to consider include performance evaluation criteria, style drift monitoring, handling of changes in ownership of the investment management firm, or change in a portfolio manager.
Elimination of investment managers and investment options. Here, the ability and process to remove investment options and replace investment managers – along with the criteria and procedure for doing either – is explained in detail.
Policies on the service of committee members. This section details matters such as how many members the committee will have or how often it will meet.

Establishing good processes for investment committees and investment policy statement formulation are often-overlooked issues. By educating yourself on this critically important process, you can demonstrate the depth of your expertise and carve out a potentially lucrative niche. Financial professionals can find more information in our white paper on Investment Committee Best Practices.

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5 best practices for investment committees

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