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Getting Comfortable With Change

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As an active proponent of investment policy statements, I have frequent opportunities to speak with advisors about the how and why of using this tool in their practice. While most recognize an IPS’s potential benefits, one question is often raised. “Wouldn’t it be risky to start using IPSs? My clients would wonder why, all of a sudden, I’m using this tool when I’d never mentioned it before. They might question my motivation and lose confidence in me.”

It’s true that change is often challenging for clients. But the fact is that change is constant. In our business, the market fluctuates and there are constant changes in the client’s situation. We also have internal changes in our firms that must be communicated to clients. Still, far too many advisors use their clients as an excuse for not making needed changes. Here are some communication tips for introducing change to your clients:

Changes in Process. As in any business, advisory firms sometimes transition to improved technology solutions. When these changes affect clients, we carefully explain the reason for the change, how it will affect the clients, and what benefit it will bring to the relationship.

Changes in Fee Structure. When a decision is made to shift from a broker/dealer affiliation to an RIA model, the advisor must inform the clients and execute the paperwork required to move their accounts to a custodian. Getting a buy-in from the client is simple once the client understands how this shift in structure will benefit him.

Firms that are compensated based on AUM, retainers, project, or hourly fees also occasionally need to make changes in their fee structure. Like any other business, we sometimes may need to adjust for inflation and changing economics.

Changes in the Advisory Team. As firms grow advisors must shepherd their clients through the process of learning to work with a new, and sometimes younger, advisor.

Introducing the use of an investment policy statement is no different from making any other type of change.The key is to communicate the rationale for the change and to clearly describe the benefits to the client. Here is how to get started:

Keeping Current. The use of an IPS has become an industry best practice because of the clarity it provides to both client and advisor.

Investment Strategy Roadmap. With a client’s goals and values mapped out in an IPS, an advisor can ensure that everything that is done on a client’s behalf is done in accordance with those goals.

Client Empowerment. The process that an advisor takes the client through to develop the IPS is, in itself, empowering. Clients appreciate the opportunity to better understand what to expect from their advisor. That clarity helps develop a much higher level of trust and respect. An investment policy statement not only tells clients what to expect from you, it helps them make their investment decisions rationally instead of emotionally.

A successful relationship is based on mutual trust and confidence. What better way to formalize that than to explicitly lay out the guidelines and expectations for critical issues such as: the degree of client involvement; asset allocation; investment instruments; investment style; taxes; other holdings held outside the portfolio; concentrated positions; and a host of other implementation concerns.

Effective communication creates the foundation for good client relationships. Investment policy statements are one of the best tools an advisor can use to ensure that the foundation is solid and enduring.

Norman M. Boone, MBA, CFP

Mosaic Financial Partners

Co-Creator, IPS AdvisorPro

San Francisco


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