If you have a financial adviser, can you recite your investment-policy statement? Most clients can’t, because their financial advisers haven’t written one, according to a March 2013 study by Russell Investments.
An investment-policy statement is a mission statement for your portfolio. It’s important to have, because it states your risk tolerance and investment goals, and even lists what you deem to be investments. That keeps you on track when circumstances change, such as when the market starts to turn or, say, your uncle gives you “a hot stock tip.”
The study found that only 39 percent of advisers create investment-policy statements for all of their clients; 33 percent say they make investment-policy statements only for their wealthiest clients. Twenty-one percent don’t bother at all. The rest didn’t specify an answer.
“I’m surprised that it’s this low,” Eleanor Blayney, who is a spokesperson for Certified Financial Planner (CFP) Board of Standards, says about the number of advisers who create statements. Blayney says that although CFP Board doesn’t require advisers who have the CFP designation to prepare investment-policy statements for their clients, it’s expected as part of CFP Board’s “client comes first” philosophy. If your financial adviser hasn’t made an investment-policy statement for you, you should consider switching advisers. “I really cannot think of a legitimate reason for an adviser not to prepare an investment plan,” Blayney says.