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January 29, 2013 at 07:15 AM
“It takes too much time; I’m afraid of lawsuits; I’m not sure how to get started.”
These are common objections to developing a solid investment policy statement that Linda Lubitz Boone and Norm Boone hear all the time—and they’re not buying it. They make a strong case for including a well-organized and thorough IPS at the outset of every client relationship.
The husband and wife financial advisory team that run IPS AdvisorPro delivered a presentation early Tuesday morning at the FSI One Voice Conference in San Diego that included the “must-have” items to include.
“Fundamentally, what we are trying to convey about investment policy statements is to explain what they are and why they are important,” Norm Boone said. “Broker-dealers rightly worry about getting sued, and they unfortunately view the IPS as giving clients a way to sue rather than as a way to protect against such suits.”
Specifically noting compliance expert and AdvisorOne contributor Tom Giachetti, Boone said Giachetti “always advises to say little as possible so as not to get sued.”
Boone believes the exact opposite.
“Yes, be careful what you promise, make sure you actually deliver what you promise and don’t include anything on which you can’t deliver,” he added. “But we see the IPS as a sort of insurance policy against being sued. It helps to avoid misunderstandings between the advisor and the client, sets a clear pathway to actions to be taken, sets out client and advisor responsibilities and gets the client to clearly commit to all that.”
The “essence” of any IPS, he continued, is that it records the agreements between advisor and client, including those that are often left unspoken. From the client perspective, it’s valuable “because they then get clarity about what they will experience, thus eliminating a lot of the reasons why clients get angry,” he said. “Avoiding misunderstandings is the largest part of avoiding lawsuits.”
