By Mark Barnicutt on June 26, 2010
In a recent article, I reviewed the importance of having an Investment Policy Statement. In this article, I’d like to address the importance of Investment Advisory Firms monitoring their clients’ portfolios. Specifically, a client’s IPS is the master document that outlines how a client’s portfolio will be structured and managed on an ongoing basis. For this reason, the IPS is the reference point against which portfolio monitoring should occur.
My experience over the past twenty years in the wealth management industry, is that IPS Statements — especially in the private wealth segment — are many times nothing more than marketing documents. Although this appears to be gradually changing, the reality is that many IPS Statements, to the extent they even exist, sit in filing drawers, and are infrequently used for monitoring clients’ investment portfolios.
To be an effective Investment Advisor, requires that clients’ investment portfolios be monitored, on a regular basis, against both Structural and Performance dimensions as outlined below:
A. PORTFOLIO STRUCTURE:
1. Asset Class:
– What asset classes have been included in the portfolio (ie: equity, fixed income, real estate, cash, etc.)?
– From what geographic regions have the portfolios’ securities be accessed (ie: Canada, US, International, etc.)?
3. Investment Mandates:
– What investment mandates comprise the portfolio (ie: Canadian equity, US mid-cap, Canadian Laddered Bond, Canadian Corporate Bond, etc.)?
4. Investment Strategies:
– What investment strategies are used in the portfolio (ie: long only, long-short strategies, active, passive, etc.)?
5. Investment Managers:
– What investment managers (including the Advisor where applicable) have employed and how much of the portfolio have they each been allocated?
6. Investment Vehicles:
– What are the current Investment Vehicles (ie: investment funds vs individual security positions) that are used within the portfolio by each Investment Manager?
– What are the various constraints that have been placed around each investment vehicle type (ie: credit quality, diversification requirements, etc.)
B. PORTFOLIO PERFORMANCE:
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