Investment Policy Statement (IPS)

An Investment Policy Statement (IPS) is the foundational document of any investment advisory relationship. It captures the client's:

• Risk tolerance: how much volatility the client can stomach without panicking
• Time horizon: when the money is needed
• Liquidity needs: cash requirements before the long horizon
• Investment objectives: capital preservation, income, balanced growth, growth, aggressive growth
• Target allocation: percentage split across asset classes
• Restrictions: ESG screens, employer-stock concentrations, etc.
• Review cadence: annual minimum; more often after life events

Why it matters

The IPS is a behavioral firewall. When markets drop 30% and clients want to sell everything, the IPS is the document that says "the plan was to stay invested through volatility." When unexpected gains arrive and clients want to chase recent winners, the IPS is the discipline that brings them back to target.

For RIAs, the IPS is also a regulatory document — proof to auditors that recommendations align with documented client needs.

Drift bands

Most IPS documents include drift bands — allowable deviation from target before rebalancing is triggered. Typical bands:

• ±5% absolute for major asset classes (stocks vs bonds)
• ±2-3% for sub-allocations (US vs International)

Revision triggers

The IPS should be revised on:

• Marriage, divorce, birth of child
• Job change, retirement
• Significant inheritance or windfall
• Major change in financial obligations
• Change in tax bracket
• Change in expected horizon

Vega's IPS

At Vega, the IPS is built via a 6-question risk tolerance questionnaire, mapped to one of 5 portfolio bands (conservative through aggressive). The output is then ratified by an Investment Adviser Representative before any allocation takes effect.