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By: Carey Freimuth, Caritas Financial
A primary responsibility of board members is to serve as trustees of the organization’s assets by exercising due diligence to ensure that its financial situation remains sound. But while fiduciaries need to protect an organization’s assets, they also need to ensure that aversion to risk doesn’t compromise the mission of the organization over the long term.
The old adage ‘cash is king’ doesn’t always apply in the world of investments. While many fiduciaries believe they are being prudent by conservatively investing all the organization’s assets in cash, this can actually lose them money in real dollar value. Simply put, the compounding effect of inflation over time results in erosion of the organization’s purchasing power.
What is an IPS?
The board needs to weigh the options and establish guidelines and policies that minimize their exposure to identified portfolio risks such as a lack of diversification or a level of volatility that is mismatched with the IPS’s stated goals and time horizon. This is where the Investment Policy Statement (IPS) comes into play as an important document by which investment decisions are based. In its most basic form, an IPS is a document which sets forth in writing how an institution’s money is to be managed by presenting financial objectives in the context of how much risk the fiduciaries are willing and able to bear. While an IPS should be customized to meet the needs and mission of the organization, the document should include:
Why have one at all?
An IPS is essential to an organization’s strategic and financial growth. They offer three major benefits:
Example of IPS template:
Best of Luck,
 While the document is not meant to be changed frequently, it should be periodically reviewed to ensure all language is up-to-date reflecting current fiduciary standards and long-term objectives. For example, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) of 2006 replaces the Uniform Management of Institutional Funds Act (UMIFA) of 1972. It is important to review an IPS to ensure it fully captures the updates of such legislation.
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