How Often Should an Investment Policy Statement (IPS) Be Reviewed?

An Investment Policy Statement (IPS) is more than just a document—it's a blueprint that guides the management of a retirement plan's investments. Given its critical role in safeguarding participants' assets and ensuring the plan meets its financial objectives, the IPS should be a living document that evolves with the needs of the plan and its participants. But how often should this vital document be reviewed?

At a minimum, an IPS should be reviewed annually. This annual review allows fiduciaries to confirm that the investment strategy outlined in the IPS continues to meet the plan's objectives, risk tolerance, and time horizon. It also provides an opportunity to ensure that the document complies with current regulatory requirements and best practices. Financial markets are dynamic, and an annual check-in helps ensure that the IPS remains relevant in the face of changing market conditions, economic shifts, and evolving industry standards [1] [2].

"Just on principle, we believe every IPS ought to be rewritten every 3-5 years, just to remind the client this is an active and important document and because it needs to accurately reflect the client's current thinking and circumstances (which often evolves over time without anyone realizing it)."

Beyond the annual review, an IPS should be revisited whenever significant changes occur. For instance, if there's a change in the plan's structure—such as a merger, acquisition, or a change in the size or demographics of the participant population—the IPS may need to be adjusted to reflect the new circumstances. Similarly, if the financial health of the sponsoring organization changes, it might necessitate a reassessment of the risk tolerance or investment strategy outlined in the IPS [3].

Changes in market conditions can also trigger a review. While the IPS is designed to provide a stable long-term investment strategy, extreme market volatility, a prolonged economic downturn, or significant changes in interest rates might require adjustments to the asset allocation or other aspects of the investment strategy. Additionally, regulatory changes or updates to fiduciary standards may require modifications to the IPS to ensure ongoing compliance [4].

Another key reason to review an IPS is the introduction of new investment options or strategies. As financial products and investment opportunities evolve, it's important to consider whether these new options align with the plan's goals and whether they should be included in the investment lineup. The review process provides a structured approach to evaluate these options and integrate them into the plan, if appropriate [5].

In summary, while an annual review of the IPS is the standard practice, it's crucial to remain flexible and proactive in revisiting the document whenever significant changes occur. Regular reviews and updates to the IPS ensure that the plan remains aligned with its goals, adheres to fiduciary standards, and is well-positioned to navigate the complexities of the financial markets [1] [3].

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References

 [1] Fragasso Advisors. (2024, April 22). Important Elements of an Investment Policy Statement, or IPS. Retrieved from https://www.fragassoadvisors.com/important-elements-of-an-investment-policy-statement-or-ips-2/ 

 [2] Fi360. (2015, January 27). How often should I update my client's IPS? Retrieved from https://www.fi360.com/blog/post/how-often-should-i-update-my-clients-ips 

 [3] Bernstein. (2024). Best Practices for Maintaining an Investment Policy Statement. Retrieved from https://www.bernstein.com/our-insights/insights/2024/articles/best-practices-for-maintaining-an-investment-policy-statement.html 

 [4] CFA Institute. (n.d.). ELEMENTS OF AN INVESTMENT POLICY STATEMENT FOR INDIVIDUAL INVESTORS. Retrieved from https://www.cfainstitute.org/-/media/documents/article/position-paper/investment-policy-statement-individual-investors.pdf 

 [5] Concentric Wealth Partners. (2023, September 1). The Importance of Regularly Reviewing Nonprofit Investment Policy Statements: Avoiding Common Mistakes. Retrieved from https://www.concentricwealthpartners.com/blog/2023/09/01/importance-of-regularly-reviewing-nonprofit-investment-policy-statements-avoiding-common-mistakes