Investment policy statement (IPS)

What it means

The written agreement setting out an investor’s objectives, constraints and the rules the portfolio will be run by.

The exam angle

Objectives are return and risk. Constraints are liquidity, time horizon, tax, legal and regulatory, and unique circumstances — memorise the five.

Where it appears in the syllabus

• Portfolio ConstructionCFA Level III · exam weight 15–20% · Equity and fixed-income portfolios, alternatives, institutions, trading costs.
• Ethical & Professional StandardsCFA Level III · exam weight 10–15% · The Standards plus the Asset Manager Code — which appears only at Level III.
• Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.

Related terms

• Behavioural biasA systematic departure from rational decision-making, either cognitive — an error of reasoning that education can…
• Risk toleranceHow much risk an investor is both able and willing to take.
• SuitabilityThe requirement to judge an investment against the client’s objectives, constraints and circumstances before…
• Goals-based investingStructuring wealth into separate portfolios for separate objectives, each with its own horizon and risk tolerance,…
• Human capitalThe present value of an individual’s expected future earnings, treated as an asset alongside their financial wealth.
• Liability-driven investingManaging a portfolio against the liabilities it must fund rather than against a market index.